CIMB’s 1HFY23 net profit and interim dividend were within expectations said Kenanga, thanks to its regional performance, the banking group believes it may do better with regard to loan growth with a clearer sense of its asset quality outlook. These may help to offset NIM pressures from earlier intense deposit competition.
The group reported a net profit of RM3.42b made up 52% of Kenanga’s full-year forecast and 53% of the consensus full-year estimate. An interim dividend of 17.5 sen (55% payout) was declared, which the house deemed to be within the 30.0 sen (c.50% payout) expectation for now.
YoY, 1HFY23 net interest income saw a flattish increase as it registered lower group-level NIMs of 2.32% from heavy deposit competition amidst loan growth across its regional operations. Non-interest income performed better thanks to more recoveries and improvements in treasury markets. Group’s cost-income ratio reduced to 46.0% as expenses growth was more optimised. Meanwhile, credit cost was moderately better at 38 bps (-3bps) as overall impairments remained stable on the back of the higher loan base. All in, 1HFY23 net profit registered at RM3.42b. Briefing’s highlights. The group refined several headline guidances for FY23, believing past targets were too conservative.
Seeing positive traction in its regional markets, Chief Executive Officer Dato Abdul Rahman notably pointed out the main loan growth locale to be from outside Malaysia being the Philippines and Indonesia. The group opted to upgrade its loan growth target to 6%-7%, albeit still behind its 1HFY23 growth of 8%. 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 bps 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 c.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 bps compression which it now extends to 15-20 bps.
This is on the back of stable OPR for the rest of FY23. It believes its ROE projections should also stay intact and safe from 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 Kenanga observes to be pre-pandemic rates. Forecasts. Post results, FY23F/FY24F earnings are largely
unchanged and safe for 1HFY23’s inputs. On the flip side, Kenanga raised its dividend expectations from 30.0 sen/34.0 sen to 35.0 sen/37.0 sen on improved payout appetite by the group
