CIMB Niaga (Niaga) saw profit expansion for 2019, despite results being dampened by headwinds coming from the benchmark interestrate cuts and a competitive banking landscape in Indonesia. Niaga’s 2019 core net profit of IDR3.914tr (+12.4% yoy; equivalent to RM1.19bn) and headline net profit of IDR3.645tr (+4.7% yoy) was within Affin’s expectations. On a qoq basis, 4Q19 core profit was weak largely due to: i) further NIM compression subsequent to the impact of four rate cuts, which was more pronounced in 4Q19; and ii) absence of NPL sales. Management’s guidance on 2020’s outlook appears to be more optimistic than our house view (of a more cautious and muted outlook). At this juncture, we keep our CIMB Group’s earnings forecasts for 2019E-22E unchanged, pending the release of its results on 28 February. Reiterate HOLD with an unchanged PT at RM5.65.

CIMB Niaga Fared Well in 2019, Within Expectations

At the operating level, Niaga reported a 2019 operating income of IDR16.8tr (seeing a decent growth of 6.3% yoy), which was partly bolstered by strong non-interest income growth (+11.5% yoy; fee income from an NPL sale circa IDR500bn) while net interest income rose by 4.6% yoy. Overall loan growth in 2019 was up 3.1% yoy, aided primarily by a robust consumer loan book (+10.6% yoy) while commercial banking loans were down 6.8% yoy. During the year, Niaga also incurred a one-off expense of IDR359bn related to an MSS cost in 3Q19. On a normalized basis, operating expenses grew by 3.9% yoy while its CIR saw a marginal improvement of 1.14ppts to 49%. Meanwhile, due to deterioration in the gross NPL ratio (rising to 2.79% in 4Q19 from 2.62% in 3Q19), Niaga’s 2019 credit cost rose by +12bps yoy to 175bps (subsequent to provisions on commercial/SME accounts).

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

Maintain our HOLD rating on the CIMB Group, with a RM5.65 target price (based on a 0.96x P/BV target on 2020E BVPS). On a more positive note, Niaga’s management guidance for 2020 appeared more optimistic vis-à-vis 2019, with some positive traction on NIM expected (at >5%; as deposit rates start to reprice down), more disciplined cost management (<49%), a more robust loan growth (6-8% yoy) and an ROE target of 11-12% (vs. 9.35% in 2019). Downside/upside risks: rise/ease in NIMs.

Source: Affin Hwang Research - 20 Feb 2020