Results

• CIMB Niaga reported 1QFY16 net profit of Rp269bn (qoq: +65.3%; yoy: +224.8%).

Deviation

• It has forewarned that provision will remain elevated in 2016 (albeit lower compared to 2015), which will impact earnings. Moreover, soft economic growth will also lead to deviation in financial performance.

Highlights

• NIM expanded by 14bps qoq (or 13bps yoy) to 5.35% in 1Q16 (on the back of higher CASA, which increased to 52.1% from 46.8% in 4Q15 and 43.4% in 1Q15). Management is keeping to its initial guidance of 5% (or slightly below) for the full -year due to challenging operating environment.

• Loans declined by 3.6% qoq (and 3.1% yoy) to Rp171trn, mainly on the back of weak economic environment and prudent asset quality management. Despite the weak 1Q16, management is still keeping its loan growth guidance of 7- 8% for the full-year, pending further assessment (with downward bias).

• Gross NPL ratio increased to 3.9% from 3.7% in 4Q15, mainly on lower loan balance and migration of loans (from special mention to NPL). Although special mention account increased from 8.2% (of total loan) in 4Q15 to 10.4% in 1Q16, management is hopeful that it will decline from next quarter onwards, as several accounts are expected to be removed out of special mention accounts by 2Q or 3Q 2016.

• Provisions remained elevated at Rp1,214bn (albeit lower on yoy and qoq basis) while credit cost, on the other hand, declined by 32bps to 2.85%. Management is keeping to its guidance that, while provisions will remain elevated (particularly, in 1H16), it will still come in lower than 2015.

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, pending CIMB Group’s 1QFY16 results by end- May.

Rating

• Trading Buy

Positives

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

Negatives

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

Valuation

• Target price maintained at RM5.17 (based on Gordon Growth with ROE of 10.1% and WACC of 10.1%) for now, pending CIMB Group’s results in end-May.

Source: Hong Leong Investment Bank Research - 3 May 2016