CIMB’s 1HFY23 reported a net profit of RM3.42b and declared an interim dividend of 17.5 sen. YoY, 1HFY23 net interest income saw a flattish increase as it registered lower group-level Net Interest Margin (NIM) of 2.32% from heavy deposits competition amidst loans growth (+8%) across its regional operations.
“Non-interest income performed better thanks to more recoveries and improvements in treasury markets. Group cost-income ratio reduced to 46.0% as expenses growth were more optimised,” said Kenanga Research (Kenanga) in the recent Results Note.
Meanwhile, credit cost was moderately better at 38 basis points as overall impairments remained stable on the back of the higher loans base. All in, 1HFY23 net profit registered at RM3.42b. The group refined several headline guidances for FY23, believing past targets were too conservative.
“Seeing positive traction in its regional markets (namely Indonesia and Thailand), the group opted to upgrade its loans growth target to
6%-7%, albeit still behind its 1HFY23 growth of 8%,” said Kenanga.
These markets are expected to mitigate expected domestic softness where economic projections may be slowing. Group credit cost outlook is also expected to improve to 40-50 basis points as the group observes that asset quality stress may not be as severe as expected.
This was also supported by lumpy recoveries seen in Singapore in 2QFY23. The group previously kept overlays of RM2.0b which it now reallocates away from pandemic-related provisions to more macro-based ones.
Conversely, NIMs could still demonstrate heavy compression with 2HFY23 only seeing stabilisation. It has previously guided for 5-10
basis points compression which it now extends to 15-20 basis points.
This is on the back of a stable overnight policy rate for the rest of FY23. It believes its Return On Equity (ROE) projections should also stay intact safe for unexpected recessionary pressures in its regional footprint.
“On the other hand, the group believes it can be more generous with its dividend payments going forward to now offer a payout of 55%,
which we observe to be pre-pandemic rates,” said the research house, maintaining the Outperform rating and the Target Price of RM6.00.
Fundamentally, the stock is supported by its regional diversification, especially in terms of Non Interest Income which most of its peers lack. CIMB’s return to double-digit ROE could be indicative of its prospects, led by better forward earnings growth while offering attractive dividend yields in the medium-term.
The group’s recent return to double-digit ROE delivery could be a call back to past investors as well. Risks to their call include higher-than-expected margin squeeze, lower-than-expected loans growth, worse-than-expected deterioration in asset quality, further slowdown in capital market activities, adverse currency fluctuations, and changes to overnight policy rate.
