CIMB’s quarter one 2023 results are in line with expectations. Key positives were robust non-interest income, operating expenses discipline and stable asset quality, while net interest margin compression was the main negative.
It is now guiding for a higher net interest margin compression of 10-15 basis points, but management is confident that there is sufficient non-interest income traction, and is retaining its financial year 2023 return on equity target, said RHB Research (RHB) in the recent Malaysia Results Review.
“This sector Top Pick is trading at an undemanding 0.75x financial year 2023 price to book value against our more conservative financial year 2023F return on equity of 9.5%,” said RHB.
Quarter one 2023 net profit rose 15% year-on-year or +24% quarter-on-quarter to RM1.6 billion, accounting for 26% of RHB and Street financial year 2023 future earnings.
Quarter one 2023 pre-impairment operating profit dipped by 3% quarter-on-quarter, largely on net interest margin pressure, cushioned by better non-interest income and lower operating expenses.
“Credit cost dropped to 30 basis points from 71 basis points in quarter four 2022 and, as such, profit before tax rose 11% quarter-on-quarter,” said RHB.
Reported return on equity of 10.3% is tracking financial year 2023’s target of 10.2-11%, while its common equity tier one ratio was healthy at 14.3%.
Net interest margin slipped 31 basis points quarter-on-quarter mainly due to Malaysia (MY) with a 30 basis points quarter-on-quarter compression while its operations in Singapore (SG), Indonesia (IND) and Thailand (TH) saw net interest margin decrease by 10-20 basis points.
On a more positive note, deposit competition has moderated, and CIMB managed to cut promotional fixed deposit rates without impacting volume adversely in -April-May – and this was notwithstanding May’s overnight policy rate hike.
Gross loans expanded 7% year-on-year, driven by IND and TH. Meanwhile, total deposits rose 6% year-on-year led by fixed deposits while current account savings account (CASA) fell 8% year-on-year.
“As such, group CASA ratio at end-March eased to 37.9%. CIMB was positive on IND’s and TH’s CASA momentum, while MY consumer CASA attrition is slowing,” said RHB.
Asset quality held up with gross impaired loan ratio and loan life coverage ratio is stable quarter-on-quarter at 3.22% and 94.2%. Management explained that the overlay writebacks in quarter one 2023 resulted from the release from stock after MY consumer and SME loans had passed the monitoring period. CIMB’s intention is to reallocate rather than release the remaining buffers. More details will be shared later.
CIMB shared its 2024 return on equity target of 11.5-12.5% and drivers. Notably, management sees a more resilient franchise with better earnings stability, giving CIMB increased confidence around its target.
RHB assumed a steeper financial year 2023 net interest margin contraction of 12 basis points from 7 basis points post recent pre-results meeting.
However, RHB trimmed their trading price by 2% to RM6, reflecting the environmental, social and governance (ESG) discount that they now ascribe following the recalibration of their in-house ESG weightage methodology.
