Results

• CIMB Niaga (Niaga) reported an improved earnings in 9M17 of Rp2.12trn (+63.5% YoY). The stellar 9M17 was supported by stronger 3Q17 earnings of Rp744bn (+32.1% YoY, +0.5% QoQ).

Deviation

• Strong earnings on YoY basis was underpinned by higher non-interest income (+5.8) and lower provision expenses (-12.9% YoY).

Highlights

• Flat loans growth… In contrary to guidance of higher growth, loan growth came in flat at 2.7% YoY, chiefly from MSME, commercial banking and corporate banking with growth of +7.5% YoY, +6.2% YoY and +6.3% YoY respectively. Consumer banking continued to decline at -6.2% YoY. Despite a moderation in consumer banking, mortgage is still healthy at +12.1% YoY while auto loans continuously dragged Niaga’s loan book at -6.2% YoY.

• NIM was healthy, but dropped on QoQ… NIM in 9M17 rose to 5.74%. However on QoQ, Niaga NIM dropped to 5.5% from 6.05% as at end-June. Management attributed this to the disposal of lucrative high-end micro Laju business. Additionally, Niaga was hurt by Bank Indonesia’s recent rate hike.

• Asset quality still elevated… While special mention account eased to 7.17% in 9M17, gross impaired loan weakened to 3.95% from 3.89% in 2Q17 dragged by corporate and commercial segments. Credit cost was unchanged at 2.77% in 9M17 versus 9M16, while loan loss coverage stayed above 100% at 115%. Management maintains guidance of moderation in the Indonesian economic environment that could lead into high GIL.

• Positive JAWS again… Personnel cost was flat, rising only +1% YoY in 9M17, resulting in positive JAWS and cost-to income ratio which was in line with expectations at 48.9%. Moving forward, management guided higher expenses (related to IT) that could jeopardize its CTI in FY19.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD ( ↔ )

• Despite the uncertainty of its ex-Malaysia operation, we believe that home market Malaysia will still provide necessary support cushioning other weaknesses. Indonesia is on-course to report further recovery whilst Thailand outlook remains bleak. Management’s guidance for a sustainable 40%-60% payout should entice the shareholders moving forward.

Valuation

• We maintain our TP at RM6.90 , derived from GGM based on i) WACC of 9.0% ii) ROE of 9.8%. Maintain HOLD.

Source: Hong Leong Investment Bank Research - 1 Nov 2017