• CIMB Niaga’s (Niaga) 1Q21 net profit of Rp996bn (RM283m) saw a sharp recovery of 573% qoq, though on a yoy basis, it declined 5.6% yoy. On an annualized basis, 1Q21 net profit at Niaga was within our expectations
• Key takeaways from the results: i) 1Q21 NIM saw uptick of 40bps qoq and 10bps yoy to 5.1%; ii) robust non-interest income growth due to FX/ derivatives and marketable securities; and iii) decline in net credit cost (NCC) by 82bps qoq to 300bps
• Maintain HOLD and TP of RM4.20 (based on a 0.7x P/BV target). Our 2021E- 23E forecasts are unchanged. Key earnings drivers for CIMB Niaga are from lower NCC against last year and NIM expansion (given low funding-cost)

Niaga’s 1Q20 net profit recovered 573% qoq; pace of decline yoy is easing

Niaga saw a sharp 573% recovery on a qoq basis in 1Q21 net profit, on the back of a much improved pre-provision operating profit (PPOP) which rose 23.3% qoq while provisions and impairments decreased further by 28% qoq (with NCC easing from 382bps to 300bps). At the top line, we also saw robust growth from non-interest income (FX/derivatives and marketable securities gain), which grew at 50.3% yoy. On a yoy basis, the pace of decline in net profit is easing, currently down 5.6% yoy in 1Q21, largely attributable to a 62.3% yoy spike in provisions, which had offset growth in fund-based income (+6.6% yoy) and non-interest income (+12.9% yoy).

Niaga Seeing Improved Traction in Selective Loan Segments and NIM

Management shared that it is seeing some good traction in loan growth towards the latter part of 1H21 in mortgages and auto-financing, as well as corporate and SMEs, amidst the COVID-19 pandemic. Nonetheless, overall 1Q21 loans were still 10.7% lower yoy. Meanwhile, NIM expansion to 5.1% in 1Q21 (vs. 5.02% in 1Q20) was driven by a significant decline in funding cost as time deposits declined (-9.2% yoy) while CASA ratio rose further from 59.6% (Dec20) to 63.3% (Mar21). Nonetheless, the robust NIM is expected to ease as Niaga expands its loans in the lower-risk consumer segment.

Maintain HOLD, Price Target Unchanged at RM4.20

Maintain HOLD 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%). No changes in our earnings forecasts. Our 2021E/22E/23E assumptions for CIMB Group include: NIM at 2.32%- 2.35%; loan growth: 2-3%; CIR at 51-52%; NCC at 70-80bps. In 2021, we expect lower ECL provisions in 2021 to underpin earnings recovery, in addition to NIM expansion and non-interest income growth at the operating level. Downside/upside risks: interest rate cuts/hikes; risk of emergence of a COVID-19 4th wave

Source: Affin Hwang Research - 30 Apr 2021