1QFY23 net profit of RM1.65b (+15%) came within expectations. The group has made headway to return to double-digit ROE performance and has built channels to help sustain earnings performance across its key regions. That said, some prudence is still exercised with regards to its overlay and capital management in the event of an economic downturn. Maintain OUTPERFORM and GGM-derived PBV TP of RM6.55.

1QFY23 within expectations. 1QFY23 reported net profit of RM1.65b made up 26% of our full-year forecast and 25% of consensus full-year estimates. No interim dividend was declared as the group typically announces its payments biannually.

YoY, 1QFY23 net interest income saw a flattish increase (1%) as a stronger regional loans footprint (+8%) was mitigated by compressed group-level net interest margin (NIM) at 2.33% (-14 bps) from intense deposits competition. Most of the pressure came from Malaysian operations where Indonesia and Thai operations saw offsetting increments. Meanwhile, non-interest income gained 21% following recoveries in treasury and money market performances. Cost-income ratio managed to improve, at 46.9% (-1.2ppt) as overall operating expenses were more optimised. That said, credit cost rose to 37 bps (+4 bps) as despite writing back some overlays, there were top ups in the leisure sector in addition to the normalisation of impairments in Singapore. All-in, 1QFY23 net profit reported at RM1.65b (+15%).

Briefing’s highlights. The group’s recent quarter marks its return to double-digit ROE. However, they aim to remain prudent in ensuring growth measures are not excessive.

1. While the group has exercised some write-backs, it intends to keep levels at a minimum and would prioritise reallocating provisions where they are needed. Total overlays still sit at above RM2.0b and provide the group with opportunities to be conservative.

2. Group-wide, wholesale businesses appears to be demonstrating the strongest loans growth but commercial banking leads in terms of profitability as it leverages more on non-interest income.

3. Regionally, CIMB Niaga looks to carry the strongest prospect as it rides on a solid corporate book performance while enjoying NIM expansion in Indonesia.

4. Closing in on its Forward23+ strategic plan, other factors that will drive ROEs are further credit cost and capital optimisation. Meanwhile, better fee-based income and investment performances are also expected with the turnaround in CIMB Digital Assets (i.e. Touch ‘n Go Digital).

5. In lieu of favouring moderate but sustainable growth in mind, the group sought to keep its FY23 guidance for now.

Forecasts. Post results, our FY23F/FY24F earnings are largely unchanged safe for 1QFY23’s inputs.

Source: Kenanga Research - 1 Jun 2023