CIMB Niaga started off FY22 on better footing, reporting a 1QFY22 net profit of Rp1.19tln (+19.9% YoY, +20.4% QoQ), led by notably stronger non-interest income growth and slightly lower provisions. Growing traction was also seen in its areas of strategic focus, the consumer and enterprise banking segments. Indonesia’s near- to medium-term outlook appears encouraging, with the country being a major beneficiary of the current commodity price boom, while private consumption is also improving on account of macroeconomic recovery. We continue to remain optimistic over CIMB Group’s longer-term prospects, underpinned by its F23+ initiatives and see recent weaknesses in its share price as opportunities for accumulation. We maintain our Outperform call on CIMB with an unchanged target price of RM6.00.

• Operating income continued to improve in 1QFY22 (+5.0% YoY, +13.1% QoQ), driven by a notable improvement in non-interest income (+22.3% YoY, +52.6% QoQ) contributions, in particuarlt from trading-related income (marketable securities, foreign exchange and derivatives). Better recoveries (+98.8% YoY, +92.7% QoQ) also helped. Management is optimistic over topline growth in the coming financial year, underpinned by growing traction seen in its key business focus areas.

• Net interest margin (NIM) was steady at 4.46% in 1QFY22 (4QFY21: 4.47%), with management opining that this is very likely the trough of the compression as i) it continues to gradually unwind the build-up in year-end liquidity and 2) as it anticipates healthier business growth from the mortgage, auto loan and corporate banking segments. The bank’s strong CASA focus (CASA ratio: 63.6%) will continue to improve funding costs, as management maintains its FY22 NIM guidance of between 4.6% and 4.7%, more likely toward the upper end of the range.

• Loans growth was a healthy +5.5% YoY, driven primarily by the consumer portfolio, mortgages (+9.2% YoY) and auto loans (+48.8% YoY) in particular which are seeing strong booking trends. The corporate banking pipeline is encouraging, as the bank will also maintain focus on the enterprise banking segment.

• Asset quality remains steady meanwhile. Loan loss coverage is a robust 210.8% (4QFY21: 212.1%) while special mention and gross non-performing loans are at 6.5% (4QFY21: 6.4%) and 3.6% (4QFY21: 3.5%) respectively. Credit cost is still elevated at 2.4% (4QFY21: 2.1%) however, though no significant deterioration is expected amid uncertain global conditions as sufficient buffers are expected to have been built-in over the recent years.

Source: PublicInvest Research - 29 Apr 2022