CIMB Niaga’s 9MFY21 CNP of IDR3.24t (+74%) continued to impress from its strong NOII traction. NII was also solid but its NIMs expansion should be easing in the near term. Despite the strong performance, management continues to stay prudent with its accounts, and remains diligent in booking overlays. Hence, credit cost should remain elevated until year-end, within its initial targets. We keep our group-level estimates unchanged for now. Maintain MP and TP of RM4.80.

9MFY21 earnings higher than expected. 92.5%-owned CIMB Niaga (Niaga) reported 9MFY21 earnings of IDR3.24t, which is above expectation (at 91% of consensus full-year estimate), mainly led by better-than-expected loan recoveries and fee-based income. Typically, Niaga makes up 15-20% of the CIMB Group’s PBT.

YoY, 9MFY21 reported a NII of IDR9.89t (+7%) due to NIMs expansion (4.94%, +19bps) against a gross loan contraction of 2%. CASA-to-deposit ratio remained buoyant at 61.7% (+1.4ppt) with an 8% rise in total deposits. NOII was lifted by 15% on the back of better fee-based results and recovery of troubled loans. CIR registered at 46.8% (-2.6ppt) as opex remained flattish while credit cost eased slightly to 233 bps (-25bps). Thanks to the higher overall income and less stressful provisioning, 9MFY21 core PATAMI amounted to IDR3.24t (+74%).

QoQ, 3QFY21 total income declined by 7%. While NII gained 3% from a higher loan base, NOII saw a decline of 31% mostly attributed to poorer forex and derivative results. NIMs (5.02%, -2bps) and CIR (47.7%, -0.2ppt) were somewhat stable between quarters. That said, annualised credit cost for the quarter increased to 212bps (+8bps) as management continued to book overlays. 3QFY21 core PATAMI came in at IDR1.07t (-9%).

Confident for a strong finishing. Niaga’s management remains focused on expanding its product lines and to serve underbanked customers with continued emphasis on its open banking solutions. Despite so far registering a YTD-decline in its total loans base, management shows confidence that it may turn around by the end of the year. This should support NII growth in the midst of the stabilisation of NIMs for the group. Management continues to keep its credit cost guidance of 240-260bps for the year, indicating that more overlays may be booked. Regardless, we believe this should not hinder the group’s leap in profitability thanks to it successfully stretching NIMs and containing its operating costs.

Post Niaga’s results, we leave our earnings forecasts for CIMB unchanged for now, pending group-level earnings report to be released end-Nov 2021.

Maintain MARKET PERFORM and TP of RM4.80. Our TP is based on an unchanged GGM-derived PBV of 0.78x on FY22E PBV (0.5SD below mean). CIMB’s resiliency is starting to resurface as it sailed past uncertainties during the early days of Covid-19. While there are still similar challenges to come, we believe the stock could be a sustainable stock pick going forward should there be a correction in its share price. Amongst the large caps, it is still shy from its peers in terms of dividend returns and ROE.

Risks to our call include: (i) higher/lower-than-expected margin, (ii) higher/lower-than-expected loans growth, (iii) better/worse-than-expected movement in asset quality, (iv) stronger/weaker capital market activities, (v) favourable/unfavourable currency fluctuations and (vi) changes in OPR.

Source: Kenanga Research - 29 Oct 2021