Period

4Q15/12M15

Actual vs. Expectations

CIMB Niaga registered 82% decline in FY15 net profit growth attributed to higher allowances for impairments.

Dividends

No dividends were declared.

Key Results Highlights

12M15 vs. 12M14, YoY

The subpar performance was due to: (i) higher opex at 13.3% (12M14: +11.7%), (ii) allowances for impairments at +55.0% (12M14: +187.2%), and (iii) operational losses of IDR1.26b on derivatives instruments.

Net Interest Income (NII) and Non-Interest Income (NOII) increased by 6.5% and 16.7%, respectively, (12M14: +5.6% and +4.3% respectively).

Net interest margin (NIM) compressed by another 10bps to 5.0%.

Loans grew at a mere 0.6% (12M14: +12.4%) due to focus on quality & prudency apart from the slower economy growth while deposits increased +2.2% (12M14: +6.7%). As such, loan-to-deposit ratio (LDR) fell by 1.7ppts to 99.3%.

Current account & savings account (CASA) deposits were up by 190bps to 46.8%.

Cost-to-income ratio (CIR) spiked 2ppts to 52.9% as total income growth outpaced opex growth (+9.1 vs +13.3%).

Assets quality was mixed as: (i) gross impaired loans (GIL) ratio improved as it fell by 16bps but (ii) credit charge ratio increased 93bps. Loan loss coverage improved by 22.7ppts to 111.5%.

Annualised ROE dropped 6.4ppts to 2.0% and regulatory ratios improved by 70-90bps. 4Q15 vs. 3Q15, QoQ

In contrast, quarter earnings improved 82.7% due to: (i) operating gains of IDR89b, and (ii) lower tax rate of 15.6%.

Operating profit fell 82.8% due to: (i) fall in total income by 4.9%, (ii) higher allowances for impairment at 18.0%, and (iii) higher operating expenses at 9.2%.

NIM compressed by 25bps to 5.0%.

LDR went up by 3ppts to 99.3% as decline in loans (-0.9%) was slower than fall in deposits (- 3.9%).

CIR increased by another 8ppts to 60.7%.

Asset quality improved as GIL ratio went up by 57bps to 3.7%.

Outlook

Niaga’s performance is likely to improve in FY16, being a beneficiary of the infrastructure spending announced recently and the interest rate cut by 50bps.

Management guided for loans growth of 7-8% and NIMs below 5%.

However, asset quality issues should continue to linger (gross NPL ratio to stay at elevated levels), since commodity prices remain soft.

Change to Forecasts

Forecasts left unchanged as guidance from management is inline with our estimates.

Rating

Maintain UNDERPERFORM

We maintain our call pending CIMB’s full-year results expected today.

Valuation

For now, we keep our GGM-TP of RM4.06. This is based on 0.81x FY16E P/B where we utilised: (i) COE of 8.9% (ii) FY16 ROE of 7.8% and (iii) terminal growth of 3%.

Risks

Steeper margin squeeze.

Slower-than-expected loans and deposits growth.

Worse-than-expected deterioration in asset quality.

Further slowdown in capital market activities.

Adverse currency fluctuations.

Source: Kenanga Research - 25 Feb 2016