CIMB Niaga reported another sequentially weaker set of quarterly results with 4QFY22 net profit coming in at Rp1.20trn (+20.9% YoY, -8.3% QoQ) due to higher loan loss provisions. Cumulative FY22 net profit of Rp5.0trn (+22.9% YoY) is the highest on record however, underpinned by recovery in business activity growth, stronger non-interest income contribution and healthier asset quality. The bank still remains well-placed to weather growing economic uncertainties, with continued improvements in its efficiency and productivity, and improving traction in its portfolio mix optimization. While management is still maintaining some level of caution amid rising macroeconomic headwinds, optimism remains as Indonesia’s post-COVID recovery continues to strengthen. We like CIMB Group’s longer-term prospects, underpinned by its strategic initiatives and maintain our Outperform call with an unchanged target price of RM6.70.

• Operating income for FY22 (+7.4% YoY) was driven by non-interest income, particularly in the areas of trading (foreign exchange and derivatives, +76.7% YoY) and loan recoveries (+80.3% YoY). Management is confident of maintaining its steady performance going forward, with stronger net interest income growth underpinned by its still-strong CASA base and growing traction in its key business focus areas, while improving on its underlying operating performance, digitalization and innovation.

• Net interest margin (NIM) improved to 4.90% in 4QFY22 (3QFY22: 4.77%) as the bank continued to make headway in re-positioning liquidity built up at the end of last year into its targeted growth segments, though slipping 17bps for the year to 4.69% as the bank’s cost of funds gained 30bps vis-à-vis a 14bps gain in loan yields. CASA ratio slipped to 63.6% in 4QFY22 (3QFY22: 67.7%) as depositors switched to term loans amid the multiple rate hikes by Bank Indonesia, though conditions have reverted to ~65% in January. FY23 NIM guidance is at between 4.6% and 4.8%, premised on a 68% CASA ratio and 88% loan-deposit mix.

• Loans growth was a strong +9.4% YoY in FY22, at the upper end of its FY22 target of 7% to 10%, driven by the consumer [mortgages: (+7.0% YoY) and auto loans (+35.4% YoY)] and corporate (+12.1% YoY) businesses. The consumer and SME segments will remain the focus area in 2023, with double-digit growth expected. Loans growth target for 2023 is between 6% and 8%.

• Asset quality remains healthy with loan loss coverage a stronger 242.2% (3QFY22: 208.8%), partly due to provisioning top-ups undertaken this current quarter. Credit cost is a higher 1.9% (3QFY22: 1.3%) as a result, though lower at 1.8% (FY21: 2.4%) for the year. Gross non-performing loans is at 2.8% (3QFY22: 3.6%). Credit cost guidance for 2023 is between 1.6% and 1.8%.

Source: PublicInvest Research - 20 Feb 2023