CIMB Niaga’s 1Q18 net profit rose by 37% yoy on the back of improved non-interest income yoy and lower loan loss provisions (-21.2% yoy), in-line with improved asset quality. 1Q18 credit cost edged down a further 23bps to 179bps in 4Q17. Meanwhile, continued NIM pressure had resulted in flat net interest income on a qoq basis. CIMB Niaga’s 1Q18 results came in within our expectations. Reiterate HOLD on CIMB with a PT of RM7.30 based on a CY18E P/BV target of 1.38x.

CIMB Niaga’s 1Q18 Net Profit +37% Yoy; +12.3% Qoq

CIMB Niaga (Niaga) reported a 1Q18 net profit of Rp877bn (RM246m), up 37% yoy and 12.3% qoq. Overall results were in line with our expectations. 1Q18 earnings key drivers are no other than the sharp decline in provisions (-21.2% yoy; -7.9% qoq) and a more robust non-interest income from forex and fixed income derivatives. Its cost-to-income ratio saw some marginal improvement yoy from 49.1% in 1Q17 to 48.6% in 1Q18. For 1Q18, Niaga saw continuous NIM pressure (1Q18 5.1% vs. 1Q17 5.71%) which had dampened net interest income generation (down 2% yoy). Nonetheless, pressure on NIM was partially mitigated by robust CASA growth of 7.4% yoy.

Outstanding NPLs Down 9.5% Qoq Led by Corporate and SME

Niaga’s outstanding gross NPLs continued to decline by 9.5% on a qoq basis, as reflected by a gross NPL ratio of 3.51% as at 1Q18 from 3.75% in 4Q17. The improvement came from lower corporate and SME NPLs, though offset by some rising stress in commercial loans in particular. Based on guidance, Niaga’s credit cost may potentially range between 150-200bps in 2018E.

Reaffirm HOLD, PT Unchanged at RM7.30 (1.38x CY18 P/BV)

We Reiterate Our HOLD Rating on CIMB, With An Unchanged 12-month

Price Target of RM7.30, based on a target P/BV of 1.38x on CY18 BVPS (underlying assumptions: 2018E 9.7% core ROE and 8.4% cost of equity). Our assumptions remain unchanged for 2018-20E: i) fund-based income growth of circa 3-4% p.a. based on loan growth of 4.0-4.6%; ii) NIM at 2.7%; and iii) credit cost at 50-57bps. Downside risks – weaker asset quality, NIM pressure. Upside risks –stronger loan growth.

Source: Affin Hwang Research - 26 Apr 2018