Results

CIMB Niaga posted 4QFY13 net profit of Rp1,071bn (-1% qoq; -5.3% yoy) which took FY13 to Rp4,282bn (+1% yoy), in line with our and consensus forecasts.

Deviation

Largely in line.

Highlights

Loans growth of 1% qoq and 8% yoy still slower than industry due to conscious efforts in view of tough situation. Deposits growth also at 8% yoy, taking LDR from 93.9% in 3QFY13 to 94.5%, within its internal target of 90-95%.

4Q NIM improved 3bps qoq (for third consecutive quarter) but still lower by 53bps yoy.

Non-interest income declined by 9% qoq but FY13 still managed to register an 8% yoy growth. Overhead decline by 4% qoq but FY13 still expanded by 9%. CIR remained high given the slower top line expansion.

Provision fell 5% qoq after doubling in 3Q despite conscious efforts to improve coverage. Although NPL improved to 2.23% vs. 2.33% in 3Q, the group continued to increase its Impairment ratio to 3.21% vs. 2.80% aimed at increasing coverage. Defaults are not rising but Special Mention (arrears) has increased, thus the conservative stance.

Management more positive about lending environment as market expectations (on rates and credit risk) are now more in line with the group’s view. Thus, it is targeting loans growth to track closer to industry’s 15%, albeit slightly lower.

However, despite recent improvement in the country’s fundamentals, there are still uncertainties that could impact its loans growth trajectory, NIM outlook, non-interest income expectations, credit cost and hence overall profitability. The uncertainties are expected to continue hog investors sentiment and share price performance.

Given the unexciting results and depreciation of Rupiah vs. Ringgit in 4Q, we expect Niaga’s earnings contribution to continue drag overall group performance. Despite that, our back-of-envelop calculation suggests that CIMB group’s FY13 earnings should be in line with our expectations with downside risk of circa 3% to our forecast.

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 for now pending CIMB Group’s final results to be released early next week.

Rating

HOLD

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

Negatives – Impact on non-interest income if capital markets soften and from higher Indonesia interest rate.

Valuation

Target price maintained at RM7.81 (Gordon Growth with ROE of 14.2% andWACC of 11.1%).

Source: Hong Leong Investment Bank Research - 19 Feb 2014