Period     1Q13

Actual vs. Expectations   CIMB Niaga reported a 1Q13 PAT of Rp1,054b, down by -7% QoQ, +12%YoY. The results showed weaknesses in certain of its market segments both on YoY and QoQ comparisons.

Dividends     None for the quarter.

Key Result Highlights     QoQ, the 1Q13 PAT of Rp1,054b fell by 7% due to NIM compression and a higher opex. The net interest income contracted by 4% QoQ and stood at Rp2,430b in contrast to a stronger Non Interest Income recorded of Rp837b, which was up by 13% QoQ.

We see signs of lending pressure in 1Q13 that partly due to seasonal impact. Loans (including Shariah loans) were flat QoQ at Rp147t for the first time. The corporate loan segment shrunk by 3% QoQ due to a large corporate repayment due to the slower macro developments in Indonesia.

NIM meanwhile dipped by -73bps to 5.14%, below industry of 5.34%, mainly on 6-8bps lower asset yields with a deposit growth of 11% QoQ outpacing the flat loan growth. This drove down the L/D ratio to 86.7% (4Q12: 95%). The CASA mix improved 2.9% to 46.4% of total deposits.

The opex of Rp1,548b was higher (+8%) QoQ.

Personnel cost added mostly to the higher opex.

This led to a high cost-to-income ratio of 47.4% (+1.2% QoQ).

The ROE in total fell by 2.55% to 18.3%.

Outlook       We are maintaining our cautious outlook on CIMB Niaga on the back of the weak set of results. According to management’s guidance, the loan demand for the syariah-based auto and property industry remains uncertain due to the implementation of the new syariah-based LTV rule effective on 1 April 2013.

As a result, the earnings visibility would be unclear at least for the next six months. Management has maintained its 2013 loan growth target at 17%-18% but sees no near-term catalysts.

Change to Forecasts Rating      Maintaining our FY13-14E PAT forecasts of RM4,751.1m- RM5,127.1m for CIMB Group.

Valuation     Maintain MARKET PERFORM

Our MARKET PERFORM rating on CIMB is maintained. The current share price offers little returns to our TP of RM7.70.

Risks     We are maintaining our target price at RM7.70, being at 1.9x FY13 book value.

Tighter lending rules and a margin squeeze.

Source: Kenanga