CIMB Group (CIMB) made further headway into its steady growth momentum, with a 3QFY23 net profit of RM1.85bn (+31.3% YoY, +4.2% QoQ) reported, contributing to a cumulative 9MFY23 net profit of RM5.27bn (+28.0% YoY). The healthier 9MFY23 performance was underpinned by better non-interest income (NoII) contributions (+35.0% YoY to RM4.71bn) and lower loan loss provisions (-15.9% YoY), with normalization in tax rate (excluding FY22’s Cukai Makmur) also helping. Continuing to exceed our and consensus estimates at 83% and 81% of full-year numbers respectively, we keep estimates unchanged nonetheless amid externaldriven uncertainties and the variability of NoII. We remain optimistic over the Group’s medium to long-term prospects as it continues to reap the rewards from its past and ongoing transformation initiatives. Our Outperform call is affirmed with an unchanged dividend-derived target price of RM6.70.

• Operating income was higher by +7.0% YoY to RM15.64bn for 9MFY23, though a mixed bag by contribution. Net interest income slipped 1.8% YoY to RM10.93bn due to margin compressions from higher deposit costs. Strong non-interest income growth (+35.0% YoY to RM4.71bn) more than mitigated however, driven by investment and market-related income. By business segment, commercial banking (+7.5% YoY to RM2.95bn) made further headway, alongside wholesale banking (+6.3% YoY to RM4.31bn).

• Net interest margin (NIM) ticked up a notch to 2.25% (2QFY23: 2.24%) during the quarter, benefitting from a full quarter’s positive impact from the policy rate hike in Malaysia, as well as improvements in loan yields. NIMs are considerably lower YoY (-30bps) however, due largely to higher deposit costs.

• Loans growth (+6.4% YoY, +1.1% QoQ) was balanced and across its business segments – consumer (+6.1% YoY), commercial (+6.1% YoY) and wholesale (+6.8% YoY). Country-wise and portfolio wise, Malaysia’s (+4.2% YoY) growth continues to be driven by the non-retail (corporate and SME) segment while Indonesia (+5.2% YoY) was lifted by the retail and corporate segments. Loans growth target of between 5% and 6% is unchanged.

• Asset quality weakness is largely benign this current quarter, reflected by the 46.8% QoQ drop in loan loss provisions to RM297m. Loan loss charge (LLC) improved by 18bps QoQ due largely to lower loan provisions in Indonesia and Singapore. 9MFY23 LLC was lower at 32bps (FY22: 51bps) meanwhile. Management has lowered FY23 guidance again, to between 35bps and 45bps (40bps-50bps previously). Gross impaired loans (GIL) ratio improved to 3.2% (2QFY23: 3.3%) due to lower consumer-based delinquencies amid more subdued loans growth. Allowance coverage improved to 95.0% (2QFY23: 91.6%) due largely to the lower GIL.

Source: PublicInvest Research - 1 Dec 2023