CIMB Niaga’s 2017 net profit rose by 43% yoy while on a normalized basis, grew 59% yoy on the back of improved operating income and lower loan loss provisions, as credit cost edged down a further 29bps to 202bps in 4Q17. CIMB Niaga’s 2017 results came in within our expectations as we have expected a slower 4Q17 (-4.4% qoq), which was due to NIM pressure. 4Q17 provisions remain elevated though was down 10% qoq. Reiterate HOLD on CIMB with a PT of RM6.65 based on a CY18E P/BV target of 1.25x.

CIMB Niaga’s 2017 Net Profit +43% Yoy; 4Q17 -4.4% Qoq

CIMB Niaga (Niaga) reported a 2017 net profit of Rp2,978bn (RM851m), up 43% yoy, while its 4Q17 net profit was Rp781bn (-4.4% qoq), in line with our expectations. The key driver to the 2017 earnings recovery was a sharp decline in provisions (-18% yoy), as the credit cost edged down from 273bps in 2016 to 226bps for 2017. For 2017, Niaga’s pre-provision operating profit rose 9.1% yoy on expansion in net interest income (+2.6% yoy) and non-interest income (+8.2% yoy). 2017’s NIM ended the year at 5.6% (-4bps yoy) while 4Q17 was at 5.2% (-30bps qoq) as pressure started kicking in since Sept17 when loan pricing were being repriced downward subsequent to the BI rate cuts. This was partially mitigated by robust CASA growth of 8.4% yoy.

Outstanding NPLs Down 1.7% Qoq Led by Corporate and Consumer

Niaga’s outstanding gross NPLs remained elevated as at 4Q17, down 1.7% qoq to Rp6.94tr (gross NPL ratio at 3.75% vs. 3.95% in 3Q17), while impaired loans crept up marginally to Rp9.4bn. This was due to some stress in commercial loans in particular. In our view, Niaga’s credit cost may potentially improve to between 150-200bps in 2018E.

Reaffirm HOLD, PT Unchanged at RM6.65 (1.25x CY18 P/BV)

We Reiterate Our HOLD Rating on CIMB, With An Unchanged 12-month Price Target of RM6.65, based on a target P/BV of 1.25x on CY18 NBVPS (underlying assumptions: 2018E 9.2% ROE and 8.4% cost of equity), pending potential revisions when the Group announces its 4Q17 results on 28th of Feb18. Our assumptions remain unchanged for 2017- 19E: i) fund-based income growth of 2.9-3.5% p.a. based on loan growth of 1.8-4.0%; ii) NIM at 2.6-2.63%; and iii) credit cost. Downside risks – weaker asset quality, NIM pressure. Upside risks –stronger loan growth.

Source: Affin Hwang Research - 27 Feb 2018