Results

CIMB Niaga posted 3QFY13 net profit of Rp1,078bn (flat qoq; -3.6% yoy) which took 9MFY13 to Rp3,212bn (+3.5% yoy), in line with ours and consensus forecast.

It managed to record slight growth YTD despite volatile economic conditions and tightening liquidity environment.

Deviation

Largely in line.

Highlights

Loans growth of 4% qoq and 12% yoy continued to be slower than industry average of 4% and 20% respectively. This is not surprising as the group has already guided that target loans growth for Niaga is circa 10% (vs. 15% earlier of the year) in view of the economic condition in the country.

Deposits growth, on the other hand, was stronger with 9% qoq (ahead of industry’s 2%) and 12% yoy (industry’s 13%). As a result, LDR improved from 99.2% in 2QFY13 to 93.9%, within its targeted range. This is also in line with the internal target of 90-95% as the focus is on liquidity management.

NIM improved 5bps qoq but still lower by 59bps. This is the second consecutive quarter of improvement. Management expects the worst is over as margin should be maintainable given less aggressive stance on loans growth which will fetch better pricing and focus on electronic banking to drive CASA (which has registered 12% yoy growth in 3QFY13).

Non-interest income grew strongly qoq at 23%, enabling 9MFY13 to register a slight growth of 5% yoy.

Overhead grew at a slower pace of 6% qoq vis-à-vis operating income expansion of 9%. However, for 9MFY13, it expanded by 8%, higher than operating income growth of 5%.

Impairment ratio registered an uptick, resulting in provision doubled qoq. However, for 9MFY13, provision was only higher by 2% as impaired ratio managed to improve yoy. The focus is now on close monitoring of its asset quality given inflationary pressure.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and impact on non-interest income if there is a slowdown in capital markets.

Forecasts

Unchanged.

Rating

HOLD

Positives - Proxy to economic growth and capital markets as well as growing regional universal bank platform.

Negatives - Non-interest income may fall short if capital markets soften and impact from higher Indonesia interest rate.

Valuation

Target price maintained at RM8.06 (Gordon Growth with ROE of 15.1% and WACC of 10.9%).

Source:Hong Leong Investment Bank Research- 30 Oct 2013