Results

• CIMB Niaga reported 4QFY16 net profit of Rp783bn (+39% QoQ, +382% YoY), bringing FY2016 net profit to Rp2.1trn (+387% YoY).

• Key highlights for FY2016 results were (i) abated provision (ii) leaner operating cost (iii) surge in net interest margin (NIM).

Deviation

• Strong earnings were underpinned by a surge in NIM to 5.64%.

Highlights

• Niaga gross loans grew by a modest 1.6% YoY to Rp180.1 trn, assisted by loan growth in corporate banking which rose by 7.1% YoY. For MSME, consumer and commercial banking, loan growth remained lackluster at -1.1% YoY, +1.0% YoY and -3% YoY respectively. Corporate loans benefited from government spending on infrastructure while retail loans were derailed by weak consumer sentiments and spending.

• FY16 NIM was higher at 5.64%, surging 43bps compared to 5.21% in FY15. The improvement was due to its management of liquidity with CASA rising by 7.2% YoY to 50.8% (46.8% in FY2015). For FY17, management guided for NIM compression to a more sustainable level around ~5%.

• Operating expenses declined by 5.6% YoY in FY16, lowering FY16 cost-to-income ratio to 48.5% from 56.8% in 12M15, in line with management’s guidance of ~50% for FY16.

• Gross NPL ratio declined to 3.89% from 4.21% in 3Q16, mainly on the back of improvement at commercial, corporate and MSME banking businesses, while that of consumer segment rose to 2.7% (from 2.5% in 3QFY16). Loan loss coverage improved strongly to 117.7% in FY16 compared to 111.5% in FY15.

• Deposit for FY16 grew modestly at 1.1% to Rp180trn assisted by CASA which rose by 9.9% YoY whilst time deposit declined 6.5% YoY.

Risks

• Further impairment in Singapore and Thailand, especially exposure in the oil & gas sector and not meeting CET1 ratio target.

Forecasts

• Unchanged, pending CIMB Group’s 4QFY16 results by end Feb. However, in view of fine performance of Niaga, we believe that the Group’s results will likely meet our PAT forecast.

Rating

HOLD ( ↔ )

• While CIMB has charted encouraging recovery in its earnings, we remain cautious on its near-term outlook due to its exposure in weak operating environment in Singapore and Indonesia, especially in the oil & gas sector.

Valuation

• Our Gordon Growth derived TP of RM4.85 is unchanged (ROE of 9.3% and FY17 P/B of 0.9). Maintain HOLD rating on the stock.

Source: Hong Leong Investment Bank Research - 21 Feb 2017