CIMB; Hold; RM8.34
Price Target: RM8.70; CIMB MK

CIMB Niaga’s 2Q13/1H13 results were below our expectations but in line with consensus. Net profit grew 2% q-o-q to Rp1,080bn which took 1H13 earnings to Rp2,134bn or 42% of our full year estimates. NIM (5.26%) held up on q-o-q basis (+12 bps) significantly declined by 67bps y-o-y. Non-interest income fell due to weaker treasury income (forex and fixed income), coupled with softer corporate actions which led to lower arranger and syndication fees in the quarter. Provisions fell in 2Q13 due to reversals/write-backs (Rp100bn). Gross NPL ratio improved to 2.25%.

Loans grew 3% q-o-q or 10% y-o-y. Deposits contracted 10% q-o-q (+9% y-o-y) as CIMB Niaga flushed out high costs deposits (time and structured deposits) coupled with lumpy withdrawals of wholesale deposits. As a result, loan-to-deposit (LDR) ratio shot up to 99%.

We understand NIM will remain under pressure and management expects NIM to soften from current levels. Management will adopt more conservative approach in credit and lending in view of a softer economic condition ahead. Loan growth should be sustainable at current momentum but would likely track below industry average. As a result, we expect LDR could move down to 90-95% from current high of 99%. Management highlighted that a key area of concern would be asset quality stress in the consumer banking portfolio. Management guided 18% ROE for 2013.

Our HOLD recommendation and RM8.70 TP on CIMB Group is maintained. CIMB Group is scheduled to release its 2Q13 results on 26 August.

Source: HwangDBS Research - 30 Jul 2013