Period

3Q15/9M15

Actual

CIMB Niaga registered 88% decline in 9M15 net profit growth attributed to higher loan loss provisions.

Dividends

No dividends were declared.

Key Results Highlights

9M15 vs. 9M14, YoY

The subpar performance was due to: (i) higher opex at 14% (9M14: 5.6%), (ii) larger loan loss provision at 162% (9M14:78%), and iii) higher operational losses at 50%.

Net Interest Income (NII) and Non-Interest Income (NOII) increased by 9.5% and 7.2%, respectively, (9M14: 3.6% and 13% respectively).

Net interest margin (NIM) was flat at 5%.

Loans grew 7.2%, while deposits increased 11.3%. As such, loan-to-deposit ratio (LDR) fell by 3.7ppts to 96% (vs. the Indonesian banking industry LDR of 89%).

Current account & savings account (CASA) deposits were marginally slower at +16% (9M14: 17%).

Cost-to-income ratio (CIR) spiked 2ppts to 50%.

Asset quality was mixed as: (i) gross impaired loans (GIL) ratio declined by 18bpts, but (ii) credit charge ratio increased 172bpts.

Annualised ROE dropped 10ppts to 1.2%. 3Q15 vs. 2Q15, QoQ

In contrast, quarter earnings declined by 5%.

NIM improved by 28bpts.

LDR fell by 9bpts to 96.3%.

CIR increased 8ppts to 53%.

Asset quality improved as GIL ratio fell by 112bpts to 3.2%.

Outlook

Slower economic growth in Indonesia could throw a spanner in the works of any meaningful earnings recovery.

Management reiterated its earlier guidance for FY15 where: (i) NIM is expected to hover around 5%, (ii) gross NPL ratio to come in between 4-4.5%, and (iii) CIR around 50%

Asset quality issues will continue to linger, causing gross NPL ratio to stay at elevated levels, since commodity prices remain soft.

Change to Forecasts

Forecasts left unchanged as we have been very conservative as per management’s guidance last month.

Rating

Maintained UNDER PERFORM

Valuation

No change to our valuations as we maintained the GGM-TP of RM4.23 (previously at RM5.63).

This is based on 1.0x FY16 P/B (previously 1.22 FY16 P/B); we utilised: (i) COE of 8.8% (unchanged), (ii) FY16 ROE of 7.9% (previously FY16 ROE of 9.4%), and (iii) terminal growth of 3% (unchanged).

The lower P/B multiple is to reflect slower growth and weaker ROE generation moving forward.

Source: Kenanga Research - 2 Nov 2015