CIMB Niaga saw another strong quarter in 2QFY23 with a net profit of Rp1.65tln (+23.3% YoY, +4.5% QoQ) reported. Improvements continued to be seen all round, with non-interest income growth particularly strong (+10.5% YoY, +2.0% QoQ), as loan loss provisions (-18.8% YoY, +4.1% QoQ) remain relatively steady. Encouragingly, management has raised its Return on Equity (ROE) target for 2023 to between 14% and 16% (12% to 14% previously), indicative of its confident outlook for the year. 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. We remain affirmed over CIMB Niaga (and the Group’s) longer-term prospects, underpinned by its growth initiatives. We maintain our Outperform call with an unchanged target price of RM6.70.

• Operating income of Rp5.04tln (+5.2% YoY, +1.0% QoQ) in 2Q FY23 was sequentially stronger, due to continued improvements in non-interest income contributions (+2.0% QoQ). Bond trading gains (+91.2% QoQ) and loan recoveries (+107.6% QoQ) were primary contributors. Growth in operating income, going forward, is expected to see an uplift from lower cost of funds, and continued momentum in its key business focus areas.

• Net interest margin compressed 19bps QoQ to 4.52% (1H 2023: 4.61%), impacted by a combination of higher funding costs (+29bps) and lower loan yields (-42bps). Management is maintaining its full-year forecast of between 4.6% and 4.8% for 2023 nonetheless, suggestive of improvements in 2H 2023, which it is confident of attaining on account of a better CASA ratio.

• Loans growth momentum remained healthy at +8.6% YoY, underpinned by the consumer (+8.0%) and corporate (+13.2%) segments. Within the consumer space, auto loans (+14.6%) and credit card/personal loans (+12.5%) were key drivers. Management has retained loans growth target at between 6% and 8% for 2023.

• Asset quality continues to inspire confidence, with non-performing loan an even better 261.9% (1QFY22: 253.5%). Credit cost is relatively unchanged at 1.6% (1QFY23: 1.5%), the slight uptick due to a refresh in its MEF variables which saw slightly higher provisions undertaken for tis mortgage portfolio. Management has lowered its credit cost guidance for 2023 to between 1.5% and 1.7% (from 1.6% and 1.8% previously). Gross non performing loan is at 2.5% (1QFY23: 2.6%).

Source: PublicInvest Research - 1 Aug 2023