CIMB Group Holdings Berhad - CIMB Niaga: Slower Start

Date: 26/04/2019

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

CIMB Niaga kicked off 2019 relatively subdued income-wise, not surprising given recent conclusion of the country’s Presidential Elections which curtailed activity while competitive funding pressures also caused a spike in interest expenses (+11.9% YoY) which weighed on net interest income growth (+0.2% YoY, +1.3% QoQ). 1QFY19 net profit of Rp944bn (+7.6% YoY, +5.9% QoQ) continued to benefit from lower provisions (-16.2% YoY, -1.1% QoQ). On an encouraging note, the Group is starting to see gradual returns of capital market activity while net interest margins are holding steady. With CIMB Niaga expected to play a significant role in the overall Group’s Forward 23 growth strategy, coupled with the steady operational improvements seen, we are optimistic of longer-term prospects. Our Outperform call is retained with an unchanged target price of RM6.50.

  • Operating income (+1.1% YoY, +3.1% QoQ) is driven predominantly by non-interest income (NoII) growth (+4.0% YoY, +8.2% QoQ). Higher arranger and syndication fees (+241.9% YoY, +488.9% QoQ) is a major contributor, but a pace which is not expected to be sustainable however, though likely encouraging going forward.
  • Net interest margin (NIM) saw a 16bps uptick to 5.28% during the quarter, benefitting from a re-pricing of its asset base following last year’s cumulative 175bps rate hike. Interest income is 4.8% higher YoY. Industry-wide deposit competition is causing a noticeable strain to funding costs however, reflected by the sharp 11.9% YoY jump in interest expense. Current account and savings account (CASA) optimization and digital-based propositions will be major lines of defense against margin erosions. CASA ratio is a healthy 53.74% (4QFY18: 52.61%). Long-term NIMs is targeted to average ~5%.
  • Loans outstanding slipped 0.3% QoQ, with activity curtailed by the recently concluded Presidential and Legislative elections as mentioned earlier. YoY growth is an encouraging 5.0%, with the mortgage (+13.1% YoY) and corporate (+6.6% YoY) segments key drivers. With incumbent President Joko WIdodo likely to return as leader, and armed with fresh growth initiatives in tow, infrastructure-related lending may feature more prominently going forward. Continued focus will also be on its Consumer and SME franchises, while the Group’s auto book is likely to start seeing expansions 3QFY19 onward following the successful rebalancing of its portfolio.
  • Asset quality risks are benign, with indicators continuing to show improvements. Gross impaired loan and gross non-performing loan ratios are 3.91% (4QFY18: 4.05%) and 3.04% (4QFY18: 3.11%). An uptick in special mention loans to 4.40% in 1QFY19 (4QFY18:3.98%) is mostly timing-related.

Source: PublicInvest Research - 26 Apr 2019

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