Results

• CIMB Niaga (Niaga) continued its recovery in 2Q17 by registering higher net profit of Rp740bn (+58.4% YoY; +15.6% QoQ).

Deviation

• Strong earnings on YoY basis was underpinned by higher net-interest income (+8.9% YoY) and lower provision (-17% YoY).

Highlights

• Recovery in gross loan . Niaga reported gross loan of RP180trn (+2.8% YoY), driven on MSME Banking (+8% YoY) and corporate banking (+10.2% YoY). In MSME, small medium continued to be a backbone for Niaga (+12.1% YoY). Meanwhile, it was a deliberate strategy to shift away from micro finance (-57.3% YoY). In consumer banking, auto loan continued to weigh on Niaga loan, as Niaga focused on higher premium brand that carries lower asset quality issues. Movement of some accounts from commercial banking into corporate banking resulted in marginal contraction of the segment of -0.9% YoY.

• NIM surged. NIM widened to 5.87% in 1H17 (5.47% in 1H16) which boosted Niaga NII to Rp6,329bn (+8.9% YoY). The widening NIM was driven by CASA ratio which rose to 54.32% (51.99% in 1H16) and active liquidity management which pushed LDR higher to 101.69%.

• Better asset quality. Despite special mention account surging to 7.17%, management is not concerned attributing it to festival season. Nevertheless, GIL improved to 5.01% in 2Q17 vs. 5.07% in 1Q17 with improvement seen in corporate and MSME segment. We do not see this as a turning point as we still assume a moderate outlook for the Indonesian economic environment.

• Credit cost still high. Despite guiding for a better credit cost, it remained elevated in 1H17 at Rp2,128bn. Moving forward, credit cost guidance was maintained due to subdued economic sentiment.

• Positive JAWS . Despite a rise in personnel cost by 2.3% QoQ, opex continued to register positive JAWS due to higher income reported. Cost-to-income ratio was in line with expectations at 48.5%.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD ( ↔ )

• We feel that FY17 will be a year of further tweaking of business operation with priority of cost and capital optimization. Management’s guidance for a sustainable 40%-60% payout should entice the shareholders moving forward.

Valuation

• We maintain our HOLD rating on CIMB with unchanged TP of RM6.30 based on Gordon Growth model (ROE 9.7% and WACC of 9.2%).

Source: Hong Leong Investment Bank Research - 1 Aug 2017