CIMB Niaga FY17 CNP of IDR2.97t exceeded expectations accounting for 106% of full-year market estimates brought about by lower-than-expected impairment allowances and lower operating losses. Pending the Group’s full-year results release tomorrow, we maintain our call and TP of RM6.80

Above expectations. FY17 core net profit (CNP) of IDR2.97t exceeded expectation, accounting for 106% of full-year market estimate. The above-expectation numbers were due to lower-than-expected impairment allowances and operating losses.

Results highlight. YoY, FY17 earnings surged by 45% to IDR4.11t underpinned by: (i) lower impairment allowances by 18% YoY, and (ii) lower operating losses by 11% to IDR510b. Top-line growth was soft at +3%% YoY driven by fee-based income of +5% with fund-based income at +3%. Fund-based income was supported by a NIM of 5.3% (15bps easing) with soft loans at 3% (vs. industry growth of 5%). Loans were underpinned by corporate banking (+8%) and commercial banking (+7%) as consumer banking contracted by 7%). Slower opex at +2% prompted lower CIR by 1ppts to 48%. Asset quality improved as GIL fell by 20bps to 3.8% with credit costs falling by 40bps to 2.2%. QoQ, CNP fell by 4% on the back of higher operating loss of IDR391b as top-line moderated to +2%. Soft top-line was underpinned by flattish fund-based income offsetting the stronger fee-based income of 6%. Loans rebounded to 4% but NIM eased by 15bps to 5.2%. For the quarter, asset quality improved as GIL fell by 20bps to 3.8% with credit costs easing by 35bps to 2%.

Moving forward, Niaga’s loans in 2018 are expected to be driven by corporate loans as Niaga participates in more Indonesia’s infrastructure projects with expansion into mortgages and credit cards coupled with strong traction from the SME segments. With LDR at 109%, we believe that the easing on NIM is inevitable as cost of funds likely to be under upside pressure. With stable commodity prices and improving GDP, we expect a stable credit charge of ~2%.

Forecasts. No changes to our forecasts for the Group pending the release of its FY17 results tomorrow.

Valuation and recommendation maintained. Our TP for the Group is maintained at RM6.80 based on a FY18E PB/PE of 1.17x/13.3x. Despite the demanding valuations, we maintain our MARKET PERFORM call as returns are within definition.

Source: Kenanga Research - 27 Feb 2018