CIMB Niaga’s 9M18 net profit (+18% yoy) was within our expectations. 9M18 key earnings driver was lower provision expenses, while offset by lower fund-based income. Though 3Q18 PBT was flat qoq, higher taxation caused 3Q18 net profit to decline 7.5% qoq. The operating environment may remain lacklustre in Indonesia over the next 6-9 months due to macro issues such as weakening of the Rupiah, rising interest rates and a twin deficit. Reiterate HOLD, PT at RM6.10.

CIMB Niaga’s 9M18 Net Profit +18% Yoy; 3Q18 +0.9% Yoy, -7.5% Qoq

CIMB Niaga (Niaga) reported a 3Q18 net profit of Rp824bn (RM226.7m), up 1.7% yoy but declined 7.5% qoq. For 9M18, net profit of Rp2,592bn (RM713.3m) was up 18% yoy. Overall results were in line with our expectations (an annualized 18% of CIMB Group pre-tax profit forecast). In 3Q18, stronger operating income from higher non-interest income (fee income, recoveries and forex income) was the key driver while it was partially offset by higher provisions (+8% qoq). For 9M18, lower provision expenses (-26.8% yoy; as net credit cost edged down 67bps yoy to 167bps) and a sharp 23.6% yoy increase in non-interest income were the main drivers, though net interest income declined by 3.8% yoy as it was hit by NIM pressure (-62bps yoy to 5.12%). Positively, NIM improved on a qoq basis, rising by 14bps to 5.17% driven by repricing of loan rates.

Loan Growth Remains Subdued; Asset Quality Improved

CIMB Niaga’s loan growth has remained subdued at 2.2% yoy (due to reduction in auto loans). Meanwhile, loan growth was stronger in the corporate (+3.6% yoy), SMEs (+5.7% yoy), commercial (+4.5% yoy) and mortgages (+10% yoy) loans. Gross NPL ratio declined 0.54ppts yoy to 3.41% on the back of improvement in the corporate and SME segments, though offset by the commercial loans.

Maintain HOLD, PT Unchanged at RM6.10 (1.14x CY19 P/BV)

Maintain HOLD with Price Target of RM6.10, based on a 1.14x P/BV target on CY19E BVPS (based on 2019E 9.3% ROE and 8.8% cost of equity). There are no revisions in our CIMB Group forecasts. For 2018E, our key assumptions include loan growth at 4% yoy, NIM at 2.48%, credit cost at 58bps and CIR of 49%. Downside risk: deterioration in asset quality. Upside risks: macro improvement and reduced competition.

Source: Affin Hwang Research - 1 Nov 2018