Results

• CIMB Niaga posted 4QFY14 net profit of Rp46bn (-86.6% qoq; -95.7% yoy) took FY14 to Rp2.3trn (-45.3% yoy), below consensus forecast or only accounted for 65% of street estimate.

Deviation

• Mainly due to higher-than-expected provision (as flagged by management during small group meeting in late Jan 15) which jumped 108.2% yoy. As a result, credit charge jumped to 212bps vs. 125bps in 3Q14 and 80bps in 4Q13.

Highlights

• Despite sequential net interest income growth (loans growth of 5.7% qoq and 12.4% yoy as well as 9bps increase in NIM), significant jump in non-interest income (partly boosted by Rp230bn profit from sale of a building) and lower overheads (wider JAW), the 40.4% qoq growth in preprovision profit was more than offset by provisions which more than doubled.

Positives

• from the results are improved NIM (after OJK capinterest rate on third party fund on 30 Sep 14), CASA growth of 2.5% qoq and 8.8% yoy higher than industry’s 1.3% qoq and 4.4% yoy as well as lower qoq overheads.

• Guiding for continue weak 1Q15 due to provisioning (albeit lower than 4Q14) but exposure to coal and coal related loans is now substantially lower with 68% already in NPL while another 3% in special mention.

Risks

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

Forecasts

• Unchanged for now pending CIMB Group’s 3QFY14 results tentatively scheduled for 27 Feb with downward bias. Niaga contributed RM90m in 3Q and assuming that its contribution is zero in 4Q and the rest of contributions stay flat qoq, FY14 earnings could be circa 3.8% below our forecast.

Rating HOLD

Positives

• - Proxy to economic growth and capital markets aswell as growing regional universal bank platform, new core banking system (1Platform) and new T18 initiatives.

Negatives

• Impact on non-interest income when capitalmarkets soften, impact of asset quality deterioration in Indonesia and legacy high cost structure.

Valuation

• Target price maintained at RM6.63 (Gordon Growth with ROE of 12.4% and WACC of 10.3%).
• Despite challenges, we believe management is proactive in attempting to turn the tide gradually via spring cleaning of its asset quality and embarking on an aggressive cost cutting (T18 initiatives) programme.
• While the poor 4Q results could induce share price weakness, P/B now at circa 0.7 SD below mean, we maintain our Trading Buy call and would take opportunity on share price weakness.

Source: Hong Leong Investment Bank Research - 13 Feb 2015