Results

• CIMB Niaga reported 3QFY16 net profit of Rp563bn (qoq: +20.4%; yoy: +532.6%), bringing 9MFY16 net profit to Rp1.3trn (+389.6%).

Deviation

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

Highlights

• Loan base continued to decline, by 0.7% qoq (-2.7% yoy) to Rp51trn, dragged mainly by lower consumer, MSME, and commercial banking businesses (but partly mitigated improved corporate banking business), due m ainly to challenging economic environment.

• NIM remained on an uptrend, expanding by 5bps qoq to 5.67% in 3QFY16 (on the back of higher CASA). 9MFY16 NIM, on the other hand, expanded by 35bps to 5.54%. Nevertheless, management is keeping its NIM guidance of 5% (or below) over the longer run due to challenging environment.

• Cost income ratio (CIR) in 3QFY16 declined to 48.7% (from 49.6% in 2Q16 and 56.1% in 3Q15), bringing 9MFY16 CIR to 49.8% (9MFY15: 53%), in line with management’s guidance of ~50% for FY16.

• Gross NPL increased to 4.2% (from 3.9% in 2QFY16), mainly on the back of higher NPLs at commercial and MSME banking businesses, while special mention account fell to 7.5% (from 8.4% in 2QFY16).

• Provisions remain elevated at Rp1.2trn (flattish on qoq basis), while credit cost declined to 2.62% (from 2.82% in 2QFY16). Management is keeping to its guidance that, while provisions would likely remain elevated and decline gradually.

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 3QFY16 results by end Nov.

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 RM4.52 (based on Gordon Growth with ROE of 9.3% and WACC of 10.1%) for now, pending release of CIMB Group’s 3QFY16 by end-Nov.

Source: Hong Leong Investment Bank Research - 31 Oct 2016