Investment Highlights

• We maintain our BUY recommendation on CIMB Group Holdings (CIMB) with unchanged fair value of RM5.80/share based on FY22 ROE of 9.5%, leading to a P/BV of 0.9x. We make no changes to our earnings estimate.

• Niaga recorded a lower core net profit of Rp1.07tril (-9.1% QoQ) in 3Q21 largely attributed to a decline in noninterest income (NOII) and higher provisions with further management overlays for consumer and emerging business banking (EBB) loans. Operating income slipped 3.6% QoQ. This was contributed by lower NOII from a decline in income from fx, derivatives and loan recovery.

• For 9M21, Niaga’s normalised net profit of Rp3.24tril grew 74.0% YoY. The improved earnings were attributed to higher operating income from a stronger (NII) and NOII partially offset by lower provisions.

• NIM in 3Q21 was compressed by 21bps QoQ to 4.84% (2Q21: 5.05%) contributed by lower loan yield. 9M21 NIM was 5.00%, a 7bps improvement YoY supported largely by lower funding cost from the optimization of deposits. It was within management’s guidance of 4.8%–5.0% for FY21.

• Management alluded to a strong growth in digital transactions through OCTO Mobile and Clicks which led to an increase in digital revenue by 47.2% YoY. Fee-based income through digital channels grew 27.1% YoY for 9M21.

• Niaga’s total assets rose by 4.9% YoY in 9M21. Higher holdings of government bonds and marketable securities (+31.6% YoY) as well as cash and short-term funds (+8.9% YoY) were partially offset by a shrinkage in loans.

• The Indonesian subsidiary’s loans for 9M21 declined by 2.2% YoY. This was contributed largely by a contraction in corporate and commercial loans while consumer and EBB loans expanded positively. The growth of consumer loans was driven largely by an expansion in mortgage and auto loans.

• Niaga’s customer deposit growth accelerated to +7.6% YoY in 9M21 underpinned by stronger CASA which grew by +10.1% YoY. QoQ, CASA ratio decreased slightly to 61.7% due to a lower mix of savings deposits.

• LD ratio remained low at 76.7%. Niaga’s liquidity remained strong as evidenced by its LCR of 124.8% while its NSFR stood at a healthy 237.5%. We see room for further lowering of Niaga’s funding cost through the release of excess liquidity and the opportunity to price its deposits to lower rates.

• 9M21 saw the Indonesian subsidiary’s NOII growing by 13.7% YoY supported by higher fees & commission, gains from marketable securities coupled with income from loan recovery.

• On sharia banking, its financing gained momentum with a stronger growth of 8.6% YoY while deposits grew by 4.6% YoY in 3Q21. 9M21 PBT for sharia banking rose by 27.7% YoY.

• Niaga's opex was flat (+0.5% YoY) in 9M21. Moving ahead, management hinted at a possibility of a marginal 1– 3% increase in opex from Rp2tril seen in recent quarters. 9M21 JAWs were positive of 8.0% YoY in 9M21. 9M21 CI ratio improved to 45.3% attributed to a strong top line.

• Credit cost was lower at 2.1% in 3Q21 vs. 2Q21’s 2.4%. We gather that excluding a recovery on bonds of Rp110bil, the total provision expenses for 2Q21 would have been higher at Rp1tril instead of Rp899bil. For 9M21, credit cost stood at 2.50% within the guidance of 2.40–2.60% for FY21.

• Niaga’s gross impaired loan ratio rose to 6.90% in 3Q21 vs. 6.40% in 2Q21. Gross NPL for Niaga increased to 3.4% VS. 3.20% in 2Q21. The higher impaired loans have lowered Niaga’s loan loss coverage ratio to 217.2%.

• As of end-3Q21, the amount of loans impacted by Covid-19 which were restructured continued to be on a declining trend. It fell to Rp23.5tril (corporate: 30.0%, commercial: 21.0%, EBB: 14.0%, consumer: 36.0%) in 3Q21. It represented 13.3% of Niaga’s total loans vs. 14.1% in 2Q21.

• Loans at risk (LAR), including those impacted by Covid-19, also continued to decline to 22.5% from 23.4% in the preceding quarter. This has increased Niaga’s loan loss coverage for LARs slightly to 32.0% in 3Q21.

• Daily new Covid-19 cases have tapered significantly from the peak in mid-July 2021. The Consumer Confidence Index in Indonesia has recovered from the Delta variant outbreak. These are expected to lead to a continued trending down of LAR and amount of Covid-19 restructured loans, consequently requiring lower top-ups in provisions in the form of management overlays moving forward.

Source: AmInvest Research - 29 Oct 2021