CIMB Group (CIMB) reported a sequentially stronger net profit of RM1.64bn (+15.1% YoY, +23.9% QoQ) in 1QFY23, aided by better non-interest income contributions and a normalized effective tax rate. Meeting both our and consensus estimates at 26% and 25% of full-year forecasts respectively, we keep forecasts unchanged even as the outlook for the financial year is being increasingly clouded by external-driven uncertainties. We expect to see the Group reaping further rewards from its F23+ initiatives, and is on track to see stronger financial years ahead. Our Outperform call is affirmed with an unchanged dividend-derived target price of RM6.70.

• Operating income grew +5.5% YoY to RM5.0bn, sustained by non-interest income growth (+24.3% YoY/QoQ to RM1.48bn) on the back of robust trading and foreign exchange (FX) income (+50.8% YoY, +59.9%) across all its key operating geographies. By business segment, commercial banking (+11.2% YoY to RM983m) was a key contributor, benefitting from strong loan and CASA (current/savings account) growth, FX income and gains on sale of impaired loans in Indonesia.

• Net interest margin (NIM) compressed notably (-31bps) during the quarter due to intense deposit competition and re-pricing, though partly mitigated by strong loans growth. Weakness was most notable in Malaysia. Management views current levels at or near troughs, and expects stabilization going forward, guiding for YoY compression in the range of 10bps to 15bps in 2023. Continued emphasis will be placed on strengthening its CASA franchise.

• Loans growth (+7.4% YoY, +1.5% QoQ) remains healthy, with traction continuing to be seen in key markets – Malaysia (+5.7% YoY) and Indonesia (+10.1% YoY). By business segment, wholesale banking (+9.8% YoY) is a key driver. Consumer banking (+6.4% YoY) is sustained by growth in the mortgage (+8.6% YoY) and hire purchase (+7.8% YoY) portfolios meanwhile. Loans growth target of between 5% and 6% for 2023 is being retained.
• Asset quality. 1QFY23 loan loss provisions are lower by 57.6% QoQ to RM306.0m largely due to write-back of overlays (RM302m) in Malaysia and Indonesia, though higher by 6.6% YoY due to underlying provisions in the consumer space. Incidentally, management has undertaken a further COVID 19-related provisioning top-up amounting to RM54m for a leisure-related exposure in Malaysia. Loan loss charge is 37bps (4QFY22: 70bps) this current quarter, with management guiding for a loan loss charge of 45bps- 55bps for FY23. Gross impaired loans at 3.2% (4QFY22: 3.3%), with allowance coverage at 94.2% (4QFY22: 93.1%).

Source: PublicInvest Research - 1 Jun 2023