Results

• CIMB Niaga reported 2QFY16 net profit of Rp467bn (yoy: +399%; qoq: +74%) took 1HFY16 net profit to Rp736bn (+317%).

Deviation

• While provision remained elevated, it has been declining on qoq basis (albeit on a gradual manner).

Highlights

• NIM continued to expand, by 27bps qoq to 5.62% in 2Q16 (on the back of higher CASA). Despite the higher NIM achieved in 1H16 (5.47% vs 5.08% in 1H15, as well management’s guidance of 5% or lower), management is keeping to its initial guidance of 5% (or slightly below) for the full-year due to challenging operating environment.

• Loans rebounded by 2.5% qoq to Rp175trn, driven mainly by commercial, corporate and MSME banking businesses.

• CIR declined to 49.6% (from 51.3% in 1Q16 and 56.1% in 2Q15), and management guided that CIR will remain within 50% level for the full year of 2016.

• Asset quality continued to improve (albeit on a gradual basis). While gross NPL remained unchanged at 3.9%, special mention loans (SML) declined to 8.4% (from 10.4% in 1Q16), as several accounted were removed out of SML during the quarter.

• Provisions increased to Rp8.3trn (from Rp7.7t rn in 1Q16 and Rp7.7trn in 2Q15), while credit cost declined to 2.82% (from 2.85% in 1Q16 and 2.95% in 2Q15). 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

HOLD

• 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 RM4.66 (based on Gordon Growth with ROE of 9.5% and WACC of 10.1%) for now, pending CIMB Group’s results in end-Aug.

Source: Hong Leong Investment Bank Research - 1 Aug 2016