Results

• CIMB Niaga (Niaga) ended FY17 with robust earnings performance with PAT of Rp2.97trn (+43% yoy). The stronger earnings were mainly driven by higher operating income (+4.8 yoy) and contained LLP (-15.3% yoy).

Deviation

• Strong earnings was underpinned by higher non-interest income (+14.9% yoy) and lower provision expenses (-15.3% yoy).

Highlights

• Muted loan growth. Niaga’s loan of +2.8% yoy came in below industry average of +5.2% yoy. The growth came mainly from MSME, commercial banking and corporate banking (which grew at 4.3%, 6.9% and 7.7% respectively). On the consumer front, mortgage loan growth grew by 12% yoy, On the other hand, auto loan continued to moderate by 41% yoy (and such trend will continue into FY18). Excluding auto loans, Niaga posted a loan growth of 6.7% yoy.

• NIM eased. NIM dropped for the second consecutive quarter (to 5.2% from 5.50% in 3Q17) on the back of various factors in 3Q17 persisting into 4Q17, including loans repricing downwards faster than deposits from recent rate cuts and focus on lower yielding loans.

• Asset quality improved. Overall, Niaga’s GIL ratio remained elevated, (3.75% in FY17 vs. 3.89% in FY16), of which corporate and consumer segment mitigated the weaknesses in commercial and MSME. Credit cost, on the other hand, spiked to 2.73% in FY17 (from 2.26% in FY16) whilst loan loss coverage declined to 77.52% (from 86.1% in FY16). Special mention accounts eased further to 4.72% from 6.6% in FY16 on the back of higher repayments.

• Positive JAWS again. Opex grew by 2.1% yoy in FY17, mainly from higher personnel cost (+8.2% yoy). Nevertheless, cost-to-income improved to 47.7% (-76bps) and resulting further positive JAW thanks to higher NII and NOII.

Risks

• Slower loan growth, additional impairment in Singapore and Thailand.

Forecasts

• Unchanged.

Rating

BUY ( ↔ )

• CIMB Group is poised to report further earnings improvement in the upcoming 4Q17. We remain optimistic on CIMB’s recovery owing to its T-18 initiatives that will further drive its ROE recovery.

Source: Hong Leong Investment Bank Research - 27 Feb 2018