CIMB Group - CIMB Niaga: Lower Provisions the Key Driver

Date: 21/02/2019

Source  :  Affin Hwang Capital
Stock  :  CIMB       Price Target  :  6.10      |      Price Call  :  HOLD
        Last Price  :  3.70      |      Upside/Downside  :  +2.40 (64.86%)

CIMB Niaga’s (Niaga) 2018 net profit (+17% yoy) was in-line with Affin’s estimates, and accounted for c. 18% of CIMB group’s net profit. 2018 key earnings driver was lower provision expenses, while offset by lower fund-based income and an increase in overheads. On a qoq basis, 4Q18 PBT saw a marginal growth of 1.7% qoq. The operating environment may remain lacklustre in Indonesia over the next 3-6 months, but is likely to pick up after the general election (expected in Apr19). Niaga’s loan growth is expected to be driven by the consumer and SME segments, with upside from corporate and infrastructure loans drawdown. Reiterate HOLD, PT at RM6.10.

CIMB Niaga’s 2018 Net Profit +17% Yoy; 4Q18 +14% Yoy, +8.1% Qoq

CIMB Niaga (Niaga) reported a 2018, net profit of Rp3,483bn (RM862m) was up 17% yoy. Overall results were in line with our expectations (circa 18% of CIMB Group 2018E core net profit forecast). In 4Q18, the operating results were relatively flat as operating income declined 1.9% qoq due to increased NIM pressure given the rate hike in Nov18. For 2018, lower provision expenses (-25.7% yoy; as net credit cost edged down 63bps yoy to 163bps) and a sharp 13.8% yoy increase in noninterest income were the main drivers, though net interest income declined by 3.2% yoy as it was hit by NIM pressure (-48bps yoy to 5.12%).

Loan Growth Remains Subdued; Asset Quality Improved

CIMB Niaga’s loan growth has remained subdued at 1.8% yoy (due to reduction in auto loans) though supported by growth in SMEs (+6.5% yoy), and mortgages (+11.2% yoy) loans. Gross NPL ratio declined 0.64ppts yoy to 3.11% on the back of improvement in the corporate, commercial and SME segments, though consumer loans were unchanged. A total of IDR4tr of loans have been written off in FY18 vs. IDR4.6tr in FY17.

Maintain HOLD, PT Unchanged at RM6.10 (1.14x CY19 P/BV)

Maintain HOLD with Price Target of RM6.10, based on a 1.14x P/BV target on CY19E BVPS (based on 2019E 9.3% ROE and 8.8% cost of equity). There are no revisions in our CIMB Group forecasts. For 2018E, our key assumptions include loan growth at 4% yoy, NIM at 2.48%, credit cost at 58bps and CIR of 49%. Downside risk: deterioration in asset quality. Upside risks: macro improvement and reduced competition.

Source: Affin Hwang Research - 21 Feb 2019

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