CIMB Group Holdings Berhad - CIMB Niaga: Healthy Improvements

Date: 21/02/2019

Source  :  PUBLIC BANK
Stock  :  CIMB       Price Target  :  6.50      |      Price Call  :  BUY
        Last Price  :  5.33      |      Upside/Downside  :  +1.17 (21.95%)

The Group’s Indonesian subsidiary reported an FY18 net profit of Rp3.48tln (+16.9% YoY) which came in within consensus expectations at 101.8% of full-year numbers. Significant improvement in asset quality made the most telling contribution, with provision expenses down 25.7% YoY. Growth in non-interest income (+13.8% YoY) was also aided by greater level of recoveries (+55.5% YoY). Net interest margin held steady throughout the year owing to proactive management, though markedly lower YoY due to liabilities rate adjustments (from the various policy rate hikes) and stiffer competition. All said, we remain encouraged by the continued operational improvements, and are optimistic of the Group’s longer-term prospects, pockets of near-term challenges notwithstanding. Our Outperform call is retained with an unchanged target price of RM6.50.

  • Operating income for FY18 was 0.5% higher YoY, driven by non-interest income (NoII) growth (+13.8% YoY). Loan recovery (+55.5% YoY) and syndication fees (+112.1%) were major contributors to NoII growth. Net interest income was down 3.2% YoY during the period meanwhile, as margins compressed sharply (FY17: 5.60%, FY18: 5.12%), succumbing to liabilities rate adjustments and stiffer competition. The Group’s conscious shift toward better-quality credits has also come at the expense of margins.
  • Net interest margin (NIM) is anticipated to stabilize at the ~5.0% mark, with CASA optimization its defense against further erosions from competitive pressures. Margins held steady at around 5.10% throughout 2018. Full transmission of the cumulative 175bps rate hike last year to its loan re pricings will be a plus point in 2019. CASA ratio is at a healthy 52.61%.
  • Loans growth was an uninspiring +1.8% YoY as the Group’s two key segments, consumer (+0.9% YoY) and corporate (+0.6% YoY) recorded anemic numbers. Both segments make up a combined 63% of the bank’s total portfolio. With pick-up in economic activity and consumer sentiment only anticipated post-Presidential Election in 2H2019, we are wary over a mid single digit growth target, though management is optimistic of potential upsides from top-tier corporates and infrastructure-related drawdowns. Continued focus will also be on its Consumer and SME franchises.
  • Asset quality indicators showed notable improvements on an overall basis, with 4QFY18 particularly encouraging. Gross impaired loan and gross non performing loan ratios are 4.05% (3QFY18: 4.33%) and 3.11% (3QFY18: 3.41%). Special mention loans are also on a downtrend (4QFY18: 3.98%, 3QFY18: 4.79%).

Source: PublicInvest Research - 21 Feb 2019

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