• CIMB Niaga’s (Niaga) 4Q20 net profit declined 84.7% yoy but rose 23.3% qoq to IDR148bn (RM42.5m) on the back of lower taxes and improved operating results. The 2020 net profit (IDR2tr; -44.8% yoy) was within our expectations
   
• Key takeaways from the results: i) 4Q20 NIM steadied at 4.72% (-1bps qoq), with 2020 NIM down 43bps yoy to 4.88%; ii) loans declined by 10% yoy, with contraction largely from business/corporate loans; and iii) 4Q20 net credit cost (NCC) rose by another 71bps qoq to 382bps
   
• Maintain HOLD and TP of RM4.20 (based on a 0.7x 2021E P/BV target). We maintain our forecasts pending further guidance on 2021

CIMB Niaga’s 4Q20 Net Profit Declined 84.7% Yoy But Rose 23.3% Qoq

Niaga saw some improvement in 4Q20 (net profit +23.3% qoq), as pre-provision operating profit (PPOP) improved 5.9% qoq while lower taxes mitigated the impact of higher provisions (+9.2% qoq) on a qoq basis. Meanwhile, for 2020, sharply higher provisions (+66% yoy; with net credit cost at 283bps in 2020 vs. 175bps in 2019) continued to weaken PPOP (-2.6% yoy), resulting in a 2020 net profit of IDR2tr (-44.8% yoy). Despite weaker asset yields, the decline in 2020 NIM (from 5.14% to 4.72%) was mitigated by a decline in funding cost. This was also boosted by robust CASA growth at 14% yoy, while the CASA ratio rose from 55.4% (2019) to 59.6%.

Niaga’s Management Guided for Elevated Credit Cost in 2021

Niaga’s management remained cautious and reiterated that the outlook will be challenging in 2021. Among others, guidance for 2021 include: i) net credit cost at 240-260bps; ii) loan growth at 3-5% yoy; iii) NIM at 4.8-5.0%; iv) CIR at <49%; v) ROE at 7-9%.

Reiterate HOLD, With Our Target Price Unchanged at RM4.20

We maintain our HOLD rating with an unchanged TP of RM4.20, based on a 2021E target P/BV of 0.7x (2021E ROE at 6.9% and cost of equity at 8.5%). Our 2020E/21E/22E assumptions for CIMB Group include: flat/1.0%/3% loan growth, NIM at 2.3%/2.32%/2.33% and NCC at 150bps/80bps/70bps. We believe that as management had taken the precaution to set aside additional pre-emptive provisions (in 4Q20) in anticipation of the risk of weaker asset quality (for accounts under the TAP/R&R) in 2021, we expect potentially lower ECL provisions in 2021 to underpin an earnings recovery. Downside/upside risks: deterioration/improvement in asset quality, rate cuts/ hikes, and weak/recovery in loan growth.

Source: Affin Hwang Research - 22 Feb 2021