Investment Highlights

• We maintain BUY on CIMB Group Holdings (CIMB) with a slightly lower fair value (FV) of RM6.40/share from RM6.50share pegging the stock to an FY23F P/BV of 1.0x based on a lower ROE of 10%. No change to our neutral 3- star ESG rating.

• 1Q23 earnings were within expectations, accounting for 25% of both our FY23F net profit and consensus’. However, we fine-tuned our FY23F/24F/25F earnings by -1.9%/-2.2%/-1.8% by lowering net interest margin (NIM) assumptions.

• CIMB reported higher core earnings of RM1.65bil (+6.1% YoY) in 1Q23. The stronger earnings were driven by a higher noninterest income (NOII) from improved trading and FX income, partially offset by higher operating expenses (OPEX) and allowances for loan losses. Net interest income (NII) in 1Q23 was subdued, impacted by the compression in net interest margin of 19bps YoY.

• Gross loan growth moderated to 7.4% YoY in 1Q23 from 7.7% YoY in 4Q22. Loan growth was supported largely by the drawdown of wholesale banking loans, followed by growth in consumer loans (Indonesia & Thailand) as well as commercial loans, mainly in Malaysia.

• In 1Q23, the group’s NIM declined by 31bps QoQ to 2.26% (Malaysia: -32bps, Singapore: -13bps, Thailand: -10bps and Indonesia: -19bps). The OPR hike by 25bps to 3% in May 2023 coupled with the efforts to reprice down FDs rates in April and May 2023 are likely to see the margin squeeze narrowing down in subsequent quarters. CASA growth declined by 7.6% YoY, contributed by the contraction in wholesale banking deposits. This led to a lower CASA ratio of 37.9% in 1Q23, which is still above the pre-pandemic level of 34%.

• CI ratio improved marginally to 46.9% in 1Q23 (1Q22: 47%).

• In 1Q23, loan loss provisions increased by 6.6% YoY due to higher underlying provisions for consumer loans and the non-recurrence of writebacks from commercial loans in Singapore. 1Q23 credit cost of 37bps was within the guidance of 45–55bps for FY23.

Source: AmInvest Research - 1 Jun 2023