CIMB Group Holdings Bhd - CIMB Niaga: Higher Fee-based Income

Date: 26/04/2019

Source  :  KENANGA
Stock  :  CIMB       Price Target  :  6.10      |      Price Call  :  BUY
        Last Price  :  5.30      |      Upside/Downside  :  +0.80 (15.09%)

CIMB Niaga’s 3M19 CNP of IDR941b is within expectation accounting for 26% of market estimate as fee-based income and asset quality improved. No changes to group’s earnings. Maintain TP at RM6.10 with an OUT PERFORM due to demanding valuations.

Within Expectations. CIMB Niaga, a 92.5% subsidiary of CIMB Group recorded a core net profit (CNP) of IDR941b for 3M19 which was in line with market expectations accounting for 26% of full-year estimates.

YoY, earnings supported by better asset quality and fee-based income. Topline improved +9% primarily due to due to better NOII (+32%) to IDR4.67t as NII was flat at IDR3.0t. The weak NII was due higher COF (surging by 12bps) despite loans improved by +5% (within guidance). Earnings (+7) were slower than topline due to i) higher opex (+6%) and higher operating losses of IDR561b (vs 1Q18 losses of IDR209b). Asset quality continued to improve with GIL down 46bps to 3.05% with credit charge down 28bps to 1.6% (within guidance of <1.8%).

QoQ, CNP was up by 6% as topline improved +22% thanks to NOII rebounding (+98%) to IDR1.63t (the strongest ever in the last 5 years). While generally a weak quarter, NII rebounded (+1.3%) attributed to better NIM (+7bps) to 5.05% as loans were flat. The strong topline did not translate into an equally strong bottomline due to the operating loss of IDR561b, despite impairment allowances fell 14%. From the preceding quarter, asset quality continued to improve as GIL fell 49bps to 3.05% with credit charge falling 26bps to 1.6%.

FY19E earnings likely supported by fee-based income. We understand previously that loans will still be in the mid-single digit space as Niaga wont be participating in the infra loans space; focused on the consumer and SME space and less on commercial and corporate sectors so as to strengthened asset quality. 1Q19 NIM expansion was a surprise (as we expected for flattish NIM) due to repricing of assets; but management guided for higher funding costs ahead which we believe due higher deposits intake (as LDR at >100% vs 94% a year ago). On a positive note improved fee-based income indicate an improved capital market activities ahead and likely picking up with conclusion of the recent Indonesian Presidential elections.

Forecasts unchanged for the Group as Niaga’s results are within expectations and guidance. Historically Niaga’s contribution to the Group is at 20~%). FY18 PBT contribution was at 20%. The Group’s 3M19 results are expected at the end of next month, thus FY19E earnings of RM4.7b are maintained for now; based on the following assumptions: (i) loans growth of ~5.5%, (ii) NIM compression at 10bps, and (iii) credit charge of 45bps.

TP maintained for the Group at RM6.10 based on an unchanged target PBV of 1.0x implying a 0.5SD-level below its 5-year mean to reflect the on-going challenges and prevailing volatilities. As valuations are undemanding, we maintained our OUTPERFORM call for the Group.

Downside risks to our call are: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans and deposits growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, and (v) adverse currency fluctuations.

Source: Kenanga Research - 26 Apr 2019

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