CIMB Niaga’s (Niaga) 1H19 net profit (+11.8% yoy) was within our estimate, accounting for circa 24% of our CIMB Group net profit forecast for 2019. We saw some positive momentum in 2Q19, with net profit improving by 9.3% qoq. Overall, the key drivers for 1H19 included a much improved operating income from a better netinterest-margin (NIM) and non-interest income. Its 1H19 credit cost has stabilized at 170bps (vs. 167 bps in 1H18) while asset quality continued to improve on a sequential basis. For 2H19, we maintain our view of a challenging operating environment in Indonesia due to a cautious business sentiment (given global trade tensions) while tight liquidity conditions may put pressure on funding costs. Reiterate HOLD, PT unchanged at RM5.65.

CIMB Niaga’s 1H19 Net Profit Grew 11.8% Yoy

Niaga reported a 1H19 net profit of Rp1,976bn (RM580.5m; +11.8% yoy), which was within our expectations (circa 24% of CIMB Group 2019E net profit forecast of RM4,815m). The 2Q19 results (net profit rose 15.8% yoy and 9.3% qoq) saw more positive momentum from the net interest income line (+7.9% qoq; +10.9% yoy), which was underpinned by NIM expansion subsequent to the repricing of financing rates. As at 1H19, NIM stood at 5.41% vs. 5.09% in 1H18, while on a sequential basis, NIM grew by 25bps to 5.53%. Asset quality has continued to improve, with the gross impaired loans ratio standing at 3.17% (2Q19) vs. 3.91% (1Q19) given improvement in the consumer, SME and commercial loan books.

Loan Growth Momentum Picking Up, Though Marginally

Niaga’s loan growth which has been subdued over the past year, has started picking up in 2Q19, rising by 1.4% qoq and 2.6% yoy. The consumer loan book saw a stronger momentum with a 6.7% yoy growth (underpinned by mortgages and credit cards), while the MSME and corporate loans were both up 3.0% yoy and 2.1% yoy.

Maintain HOLD on CIMB Group, PT Unchanged at RM5.65

We maintain our HOLD rating on the stock with a RM5.65 target price (based on a 0.96x P/BV target on CY20E BVPS). Our 2019-21E key assumptions include loan growth at 4.1-4.3% yoy, NIM at 2.45%, credit cost at 38-39bps and CIR of 54-55%. Downside/upside risks: rise/ease in funding pressure.

Source: Affin Hwang Research - 16 Aug 2019