- CIMB Group Holdings Bhd’s (CIMB) 97.9%-owned Indonesian subsidiary PT Bank CIMB Niaga Tbk’s (CIMB Niaga) recprded net earnings of Rp1,054bil in 1QFY13, or a 6.8% QoQ decline from 4QFY12’s Rp1,131bil. The weaker net earnings were due primarily to timing issues, with a weaker net interest income (-4.4% QoQ) caused primarily by a much larger jump in deposit (+10.8% QoQ) in contrast to a flat loans growth (+1.1% QoQ), leading to a much lower loan-to-deposit (LDR) ratio of 86.7% in 1QFY13 (4QFY12: 95.0%).

- The flat loans growth was attributed to large lumpy corporate repayments (e.g. coal sector following injection of new capital), and a subdued corporate syndication market. Deposit growth was however strategically raised to prepare for a stronger loans pipeline ahead. Given the much lower LDR utilisation, NIM declined 64bps QoQ and 53bps YoY to 5.14% in 1QFY13. Besides this, there was also contributing effect from a generally lower asset yield of -8bps QoQ. Looking ahead, the company alluded to NIM already starting to improve in April 2013, with the NIM target maintained at 5.5%.

- Non-interest income grew 13.0% QoQ but was down 13.5% YoY. The QoQ growth is commendable considering the quiet corporate loan syndication activities in 1Q. The YoY compression was attributed to lesser bond gains in 1QFY13 at Rp163bil, compared with c.Rp250bil a year earlier in 1QFY12. In addition, forex income came down by 34.2% YoY to Rp98bil from Rp149bil a year earlier – attributed to absence of corporate forex hedging business as a result of lesser corporate loan syndications. Otherwise, there continued to be robust gains in fees and commission income, by 8.9% QoQ and 25.9% YoY to Rp442bil (4QFY12: Rp406bil), due to robust trade finance, credit card, insurance and banking fees.

- CIMB Niaga also hinted at a strong debt and equity pipeline ahead. And the good news overall – CIMB Niaga’s non-interest income in Ringgit terms is estimated at RM268mil in 1QFY13, well above the RM250mil/quarter required to sustain CIMB NIaga’s non-interest income at RM1bil per annum, and our forecast for CIMB group at RM4.2bil FY13F.

- Both the gross non-performing and gross impaired loans recorded QoQ upticks (+6.6% and +7.2% respectively), attributed to delayed timing of repayments due to a long holiday effect as at end-March 2013. CIMB Niaga had a quiet start to FY13F, but we expect stronger quarters ahead, judging by deposit-taking behaviour as well as non-interest income outlook. Maintain BUY on CIMB with a fair value of RM9.50/share.

Source: AmeSecurities