Investment Highlights

• We maintain BUY call on CIMB Group Holdings (CIMB) with an unchanged fair value of RM5.60/share based on FY22 ROE of 9.3%, leading to P/BV of 0.9x. We make no changes to our earnings estimates.

• Niaga recorded core net profit of Rp1.18tril (+18.2% QoQ) in 2Q21 attributed to lower provisions. Operating income slipped 2.4% QoQ. This was contributed by the weaker noninterest income (NOII) from a decline in treasury income while net interest income (NII) was flat QoQ.

• Niaga’s 1H21 normalised net profit, excluding the write-off of IT software and fixed assets of Rp41bil, grew 24.6% YoY. The improved earnings were attributed to higher operating income from a stronger NII and NOII partially offset by increase in operating and provision expenses.

• NIM in 2Q21 eased by 7bps QoQ to 5.05% (1Q21: 5.12%) with its Ioan yield declining more than funding cost. The tapering of the loan yield was due to Niaga’s focus on selected segments for loan growth which are lower in credit risk. For 1H21, NIM stood at 5.08%, a 3bps improvement YoY.

• Management alluded to the sustainability of Niaga’s strong CASA growth. This, coupled with the lowering of rates for term deposits (TDs) and a drop in Syariah banking’s funding cost, were supportive of its low funding cost.

• Niaga’s total assets grew 5.3% YoY in 1H21 with the rise in holdings of government bonds and marketable securities (+50.6% YoY) partially offset by contraction in loans.

• The Indonesian subsidiary’s loans in 1H21 shrank by 6.8% YoY driven largely by the contraction in corporate and commercial loans while mortgage, auto and EBB loans expanded positively.

• Niaga’s customer deposits accelerated to register a higher growth of 7.1% YoY for 1H21 supported by stronger CASA growth of 9.4% YoY and expansion in time deposits (TDs). CASA ratio decreased slightly QoQ to 62.4%. 2Q21 saw a stronger push for deposits relative to loans and this has contributed to a lower LD ratio of 78.4%.

• The drowth of digital transactions continued to gain traction for Niaga. 2Q21 saw the sharp rise YoY in terms of the number of mobile transactions (including financial transactions) and transaction values. 96.0% of its financial transactions have been transacted digitally with the remaining 4.0% through branches. With the gradual strengthening of digital channels, Niaga aims to further reduce its branches and number of ATMs moving forward.

• 1H21 saw the Indonesian subsidiary’s NOII growing by 18.4% YoY supported by higher fee & commission, FX & derivatives income, gains from bonds and income from loan recoveries.

• On Sharia banking, financing grew modestly by 2.0%QoQ while deposits grew sharply in 2Q21. 1H21 PBT for Sharia banking rose 34.9% YoY.

• Niaga's opex remained tightly managed with a rise of only 1.2% YoY in 1H21. Against an operating income growth of 8.7% YoY, JAWs were positive of 7.5% YoY in 1H21. 1H21 CI ratio improved to 44.6%.

• Provisions declined by 28.4% QoQ in 2Q21 as Niaga had front loaded most provisions in 1Q21 and FY20. Arising from this, credit cost was lower at 2.40% in 2Q21 vs. 1Q21’s 3.00%. Credit cost is likely to trend higher in 3Q21 compared to 2Q21. This is due to the potential adjustments to macro-economic variables (MEVs). Semi lockdowns have been imposed in Indonesia following the outbreak of a new wave of Covid-19 which is likely to impact economic activities to a certain extent.
  
  For 1H21, credit cost stood at 2.70%, slightly above the guidance of 2.40–2.60% for FY21.
   
• Niaga’s gross impaired loan ratio rose marginally to 6.40% in 2Q21. Gross NPL for Niaga fell to 3.20% in 2Q21 vs. 3.80% in 1Q21 as a loan that has been disposed was written off. Management of Niaga highlighted that it is closely monitoring the asset quality of commercial and unsecured consumer loans. Meanwhile, It is comfortable on the asset quality of corporate loans as well as SME loans which are well collateralised.
   
• As of end-2Q21, the amount of loans impacted by Covid-19 which is restructured decreased slightly to Rp24.4tril (corporate: 28.0%, commercial: 18.0%, EBB: 14.0%, consumer: 40.0%). It represented 14.1% of Niaga’s total loans vs. 14.4% in 1Q21.

• Loans at risk (LAR), including those impacted by Covid-19, eased to 23.4% from 23.7% in the preceding quarter. In tandem, the coverage for LARs has declined slightly to 30.4% in 2Q21.

• Niaga’s ROE remained a strong 11.4% in 1H21. Management continues to guide an ROE of 9.0–11.0% for Niaga in FY21.

Source: AmInvest Research - 2 Aug 2021