30 November 2020

Results Note RM3.83 @ 27 November 2020

CIMB Group (CIMB MK)

“We remain cautious due to risk of
default of those under assistance SELL (maintain) Price Target: RM3.40
program and R&R” Up/Downside: -11.5% Previous Target (Rating): RM2.90 (SELL)

Another lacklustre quarter driven by elevated provisions

Share price performance
 3Q20 net profit of RM194.4m (-80.8% yoy; -30% qoq) was below our and
(RM) consensus estimates. On a qoq basis, 3Q20 saw recovery in net interest
8.00
income and stronger non-interest income while offset by marginal increase in
7.00
6.00
provisions and a higher effective tax rate.
5.00
 CIMB guided that more provisions will be front-loaded in 2020, hence revising
4.00
3.00
its 2020 NCC guidance to 140-150bps (from 120-140bps) while raising its
2.00 expectation to 60-80bps for 2021 (from 50-60bps).
1.00
0.00
 We revised 2020E-22E earnings forecasts by -27%/+13%/+1.8%. Maintain SELL,
Nov-17 May-18 Nov-18 May-19 Nov-19 May-20 Nov-20 with a revised PT of RM3.40. Investors should take the opportunity to lock-in
gains given the recent rebound in share price.
1M 3M 12M
Absolute (%) 26.0 13.6 -27.0
Rel KLCI (%) 9M20 operating results on a BAU basis down 4.2% yoy
17.6 9.9 -28.0
On a ‘BAU” basis, CIMB’s 9M20 operating income declined by ~4.2% yoy, with 9M20
BUY HOLD SELL fund-based income relatively flat yoy (due to impact of the net ‘mod-loss’ of RM281m as
Consensus 4 15 3 well as the rate cuts) while non-interest income was 16.4% lower yoy (due to lower fee
Source: Bloomberg income and trading/FX gains). 3Q20 NIM recovered by 16bps qoq to 2.31% (given the
lagged repricing of deposit cost and absence of the ‘mod-loss’) while 9M20 NIM declined
Stock Data 17bps yoy to 2.3%. Meanwhile, CIMB’s loanbook has remain subdued, +1.6% yoy,
Sector Banking mostly underpinned by consumer (+3.5% yoy) while commercial and wholesale loans
Issued shares (m) 9,923.0 were mostly flat yoy, due to repayments and cutback in exposure (business banking). For
Mkt cap (RMm)/(US$m) 38,746/7,862 9M20, CIMB saw NCC at 144bps vs. 38bps in 9M19.
Avg daily vol - 6mth (m) 15.3
52-wk range (RM) 2.90-5.40 More provisions to be front-loaded in 2020, raising NCC guidance to 140-150bps
Est free float 38.0% Based on previous guidance, CIMB’s management had additional overlays in credit cost
Stock Beta 1.10 (post-3Q20) for the Malaysian loanbook (a few corporate names as well as for some
Net cash/(debt) n.m. legacy accounts in Indonesia and Singapore). Hence, we revise our 2020E/21E/22E
ROE (CY21E) 6.9% NCC assumptions as follows: 150bps/80bps/70bps (from 127bps/94bps/70bps), based
Derivatives Nil on management’s revised guidance of 140-150bps for 2020 and 60-80bps for 2021.
Shariah Compliant No Accordingly, about 9.8% of Malaysia’s loanbook is under relief/assistance/R&R programs,
while Indonesia, Singapore and Thailand at 16%, 6% and 27% respectively.
Key Shareholders
Khazanah Nasional Bhd
Maintain SELL, Price Target revised to RM3.40 (from RM2.90)
27.2%
EPF 16.4%
We maintain our SELL rating on CIMB, with a revised PT of RM3.40 (based on a 0.57x
Source: Affin Hwang, Bloomberg P/BV on CY21E BVPS) underpinned by a CY21E ROE at 6.9% and cost of equity of 9.8%
subsequent to our earnings revisions of -27%/+13%/+1.8% for 2020E-22E (with
adjustments to net credit cost and improved NIM due to lower funding cost). Our key
assumptions: NIM at 2.3%-2.33%; loan growth: flat/+1%/+3%; CIR at 51-54%. Upside
risks: interest rate hikes; lower provisions.
Tan Ei Leen Earnings & Valuation Summary
T (603) 2146 7543 FYE 31 Dec 2018 2019 2020E 2021E 2022E
E eileen.tan@affinhwang.com Total income (RMm) 17,382.0 17,795.9 16,246.5 16,809.0 17,478.1
PPOP (RMm) 8,726.1 7,923.0 7,446.5 8,000.2 8,493.1
Pretax profit (RMm) 7,200.7 5,974.8 1,999.9 5,109.7 5,897.4
Net profit (RMm) 5,583.5 4,559.7 1,426.0 3,964.5 4,571.0
EPS (sen) 59.7 47.0 14.4 40.0 46.1
Core net profit (RMm) 4,656.1 5,013.7 1,426.0 3,964.5 4,571.0
Core EPS (sen) 49.8 51.7 14.4 40.0 46.1
Core EPS growth (%) 1.1 3.8 (72.2) 178.0 15.3
Core PER (x) 7.7 7.4 26.7 9.6 8.3
ROE (%) 9.6 9.3 2.6 6.9 7.6
BVPS (RM) 5.37 5.67 5.66 5.94 6.26
P/BV (x) 0.71 0.68 0.68 0.65 0.61
Net DPS (sen) 25.0 26.0 4.3 12.0 13.8
Dividend Yield (%) 6.5 6.8 1.1 3.1 3.6
Chg in EPS (%) -27.0 +13.0 +1.8
Affin/Consensus (x) 0.7 1.1 1.0
Source: Company, Affin Hwang estimates
Fig 1: Results Comparison
FYE Dec (RMm) 3Q19 2Q20 3Q20 QoQ YoY 9M19 9M20 YoY Comments
% chg % chg % chg

9M20 interest income was mostly impacted

by the rate cuts across home markets. Loan
growth remain subdued, +1.6% yoy, mostly
Interest income 5,114.0 4,710.1 4,247.1 (9.8) (17.0) 15,130.6 13,830.6 (8.6)
underpinned by consumer (+3.5% yoy) while
commercial and wholesale loans were
mostly flat yoy.
3Q20 interest expense declined 16% qoq
(due to lagged repricing of deposit rates)
while loans due to the rate cuts. Deposits
Interest expense (2,546.2) (2,017.8) (1,688.1) (16.3) (33.7) (7,724.6) (6,006.5) (22.2) +6.1% yoy, with strong CASA growth of
+23.4% yoy while FDs were down 6.8% yoy.
CASA ratio rose to 40% as at 3Q20 vs.
34.4% in Dec19.
Net interest income 2,567.7 2,692.3 2,559.0 (5.0) (0.3) 7,406.1 7,824.1 5.6
Net modification loss - (281.0) (11.9) (95.8) n.m. - (224.1) n.m.
Islamic fund-based
681.3 522.7 680.9 30.3 (0.1) 1,906.9 1,774.0
income (7.0) 3Q20 fund-based income recovered +10% qoq
in the absence of significant Day1 ‘mod-loss’.
9M20 NIM at 2.3% (-17bps yoy) while 3Q20
Fund-based income 3,249.0 2,934.0 3,228.0 10.0 (0.6) 9,313.0 9,374.0 0.7 NIM recovered to 2.31% vs. 2.15% in 2Q20
and 2.52% in 3Q19.

9M20 non-interest income was down 19.7%

Non-interest income 1,389.4 931.3 1,236.6 32.8 (11.0) 3,708.5 3,099.0 (16.4) yoy (due to lower fee income and trading/FX
gains).
Gain on disposal of
- - - n.m. n.m. 252.0 - (100.0)
assets
Net income 4,638.4 3,865.3 4,464.6 15.5 (3.7) 13,273.4 12,473.0 (6.0)
Operating 9M20 CIR stood relatively unchanged yoy at
(2,786.4) (2,124.4) (2,205.0) 3.8 (20.9) (7,382.4) (6,647.9) (10.0)
expenses 53.3%.
Pre-provision profit 1,852.1 1,740.9 2,259.6 29.8 22.0 5,891.0 5,825.1 (1.1)
ECL on Provisions remain elevated in 3Q20, +3.4%
(403.6) (1,469.8) (1,520.3) 3.4 >100 (1,032.7) (3,957.8) >100
loan/financing qoq (with NCC at 166bps vs. 45bps in
3Q19), while 9M20 was up 283% yoy (NCC
at 144bps vs. 38bps in 9M19). Most of the
ECL written back/ provisions were driven by specific credit
(123.4) (102.4) (320.4) >100 >100 7.6 (583.9) >100
Others impairments, MEF adjustments and
management overlay. There were also
impairments in the bond book.
Profit from
11.8 27.7 35.1 26.6 >100 29.9 80.9 170.6
associates
Pre-tax Profit 1,336.9 196.4 454.0 131.2 (66.0) 4,895.8 1,364.3 (72.1)
Taxation (350.6) 76.6 (274.9) (>100) (21.6) (1,206.8) (413.6) (65.7)
Minority interests 24.0 4.1 15.4 >100 (36.0) 21.9 28.7 30.8
Net profit 1,010.3 277.1 194.4 (29.8) (80.8) 3,711.0 979.4 (73.6) 9M20 net profit below Affin and consensus
Core net profit 1,268.0 277.1 194.4 (29.8) (84.7) 3,968.7 979.4 (75.3) estimates.
EPS (sen) 10.36 2.79 1.96 >100 (81.1) 38.4 9.9 (74.3)
Core EPS (sen) 13.04 2.79 1.96 (29.8) (85.0) 41.1 9.9 (76.0)

DPS (sen) - - - - - 14.00 - n.m. No interim dividend proposed for this

Net yield (%) - - - quarter.
- - 3.7 - n.m.
Source: Affin Hwang, Company

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Fig 2: CIMB Group: Key financial ratios and performance
FYE Dec (RMm) 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20

Key Financial Ratios:

Profitability
Net asset yield (%) 4.04 3.94 3.99 3.93 3.71 3.51 3.09
Cost of funds (%) 2.21 2.22 2.12 1.99 1.85 1.59 1.31
Group NIM (%) 2.48 2.37 2.52 2.53 2.44 2.15 2.31
Non-interest income ratio (%) 26.5 32.9 29.9 26.0 22.5 24.1 27.7
Cost to income ratio (%) 55.3 51.3 52.5 54.6 56.0 55.0 49.4
Annualised ROE (%) 9.2 9.9 9.1 7.4 3.7 2.0 1.4

Balance Sheet
Gross loans (RMm) 350,684.5 355,907.0 360,699.3 369,491.5 363,938.0 369,936.7 366,406.2
Customer deposits (RMm) 376,048.2 381,112.9 386,865.0 395,798.4 392,974.6 413,185.6 412,224.8
Gross loan/deposit ratio (%) 91.4 91.5 91.6 92.0 91.2 88.2 89.2
CASA ratio (%) 32.9 34.4 34.3 34.4 36.5 38.4 40.0

Asset Quality
Gross Impaired loan (RMm) 10,497.7 11,107.2 11,364.3 11,343.8 12,500.3 13,366.2 12,366.3
Gross Impaired loan ratio (%) 3.0 3.1 3.2 3.1 3.4 3.6 3.4
Net credit cost (bps) 34.0 37.0 45.0 66.0 106.0 159.0 166.0
Net Impaired loan ratio (%) 0.4 0.7 0.8 0.6 0.9 0.7 0.2
Impaired loan cover (%) 88.2 78.2 76.6 80.7 75.9 81.9 93.8
Impaired loan cover with Reg. reserves (%) 103.5 96.6 94.8 99.6 75.9 81.9 93.9

Capital Ratios (Group Level)

Core Equity Tier-1 (%) 12.8 12.9 13.1 12.9 12.5 12.9 13.0
Tier-1 (%) 13.6 14.0 14.2 14.0 13.6 14.0 14.1
Total Capital (%) 16.2 16.6 16.7 16.8 16.1 16.4 16.7

* 2Q20 NIM excluding impact of RM281m net modification loss

Source: Affin Hwang, Company data

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Important Disclosures and Disclaimer

Equity Rating Structure and Definitions

BUY Total return is expected to exceed +10% over a 12-month period

HOLD Total return is expected to be between -5% and +10% over a 12-month period

SELL Total return is expected to be below -5% over a 12-month period

NOT RATED Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation

The total expected return is defined as the percentage upside/downside to our target price plus the net dividend yield over the next 12 months.

OVERWEIGHT Industry, as defined by the analyst’s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months

NEUTRAL Industry, as defined by the analyst’s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months

UNDERWEIGHT Industry, as defined by the analyst’s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months

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