CIMB Niaga reported a robust 1QFY23 net profit of Rp1.58tln (+32.4% YoY, +31.9% QoQ), incidentally its highest quarter on record, on the back of strong interest income growth (+16.9% YoY, +5.3% QoQ) and notably lower loan loss provisions (-34.2% YoY, -25.0% QoQ). The bank remains well-placed to weather growing economic uncertainties, underpinned by further improvements in its efficiency and productivity, and improving traction from its portfolio mix optimization. With Indonesia’s post COVID economic recovery gaining a greater foothold, we remain enthused over CIMB Niaga (and the Group’s) longer-term prospects, underpinned by its F23+ strategic initiatives. We maintain our Outperform call with an unchanged target price of RM6.70.

• Operating income for 1QFY23 (+3.8% YoY, +4.2% QoQ) was sustained by expansion in asset yields following more rapid re-pricings post-rate hikes, though interest expense saw a notable jump (+42.0% YoY, +22.7%) on account of a significant influx in high-cost deposits. A sequentially stronger non-interest income growth (+23.2% QoQ) was driven by foreign exchange and derivatives-related contributions (+370.6% QoQ) and loan recoveries (+181.8% QoQ). Growth is expected to remain steady going forward, underpinned by its still-strong CASA base and growing traction in its key business focus areas, improvements in its underlying operating performance, digitalization and innovation.

• Net interest margin (NIM) weakened to 4.71% in 1QFY23 (4QFY22: 4.90%) in line with the notable pick-up in higher cost deposits (time deposits: +7.7% YoY, +12.5% QoQ, CASA: -2.5% YoY, +1.8% QoQ) during the quarter as customers switched holdings in search of higher yields amid the multiple rate hikes. With gradual deployment into its targeted growth segments throughout the year, we expect to see FY23 NIM guidance maintained.

• Loans growth was a strong +10.1% YoY in 1QFY23, with traction seen in its targeted segments, consumer (+9.4% YoY), SME (+6.6% YoY) and corporate (+16.2% YoY). Within the consumer segment, mortgages: (+5.5% YoY) and auto loans (+20.6% YoY) were key drivers. The corporate segment was driven by greater penetration into the top-tier corporates, multinationals and state owned companies meanwhile. Growth target for 2023 is between 6% and 8%.

• Asset quality is encouraging, with loan loss coverage a healthier 253.5% (4QFY22: 242.2%). Credit cost is also lower at 1.5% (4QFY22: 1.9%) this current quarter, due in part to write-backs as a result of an early repayment by a corporate client. Gross non-performing loan is at 2.6% (4QFY22: 2.8%).

Source: PublicInvest Research - 28 Apr 2023