CIMB Niaga’s 1QFY22 CNP of IDR1.19t (+20%) is within expectation. Management believes that NIM suppression has come to an end on improved loans and optimised deposit rates. Loans growths are still promising with provisions still stand to be more relaxed as compared to previous years. We keep our group-level estimates unchanged for now. Maintain OP and TP of RM5.65 for the group.

1QFY22 within expectations. 91.5%-owned CIMB Niaga (Niaga) reported 1QFY22 earnings of IDR1.20t which came in within expectations, making up 27% of the street’s full-year estimates. Typically, Niaga makes up 15-20% of CIMB Group’s PBT.

YoY, 1QFY22 reported a NII of IDR3.21b (-2%) despite a 5% expansion in loans profile as NIMs eroded to 4.47% (-61 bps). The shortfall in NIM came from a compression in asset yields in a highly competitive rate landscape. Meanwhile, CASA mix remained stable (63.6%, +0.3ppt). NOII rose by 17% thanks to more timely trading gains while fee-based income eased (-8%) although this could be owing to lumpier receipts seen in 1QFY21. CIR marginally improved (44.4%, -0.5ppt) from the higher top-line. Credit cost also tapered down at 245 bps (-44 bps) on improved macros and economic health, ultimately lifting 1QFY22 PATAMI to IDR1.19t (+20%).

QoQ, 1QFY22 saw higher total income (+12%) due to the same abovementioned reasons on NOII. Although NIMs still registered a sequential decline (-9 bps), management described that progressive improvements in asset yields which should translate to small NIM upticks in the coming period. Credit cost saw a slight bump (+8 bps) as provisioning measures remain prudent, but still much more relaxed than prior periods.

Turning favourable in FY22. Management opines that past year’s challenges are slowly subsiding, where interest margins had been hard-pressed due to Indonesia’s interest sensitive markets. Following the recent months’ performance, management is confident that NIMs have seen its trough rates and should come in at improving levels as asset yields begin to rise with cost of funds still showing further optimisation. Niaga targets FY22 NIMs of 4.6-4.7%. While the group is considerate of geopolitical developments, loans growth potential remains intact across most segments, with minor headwinds in the commercial spaces. Previously aspired loans target growth is 4-6%.

Post Niaga’s results, we leave our earnings forecasts for CIMB unchanged for now, pending group-level earnings results to be released end-May 2022.

Maintain OUTPERFORM and TP of RM5.65. Our TP is premised on an unchanged FY23E GGM-derived PBV of 0.88x (mean). We believe current price levels present a buying opportunity for the stock with the softer sentiment arising from the recent MoneySend issue which bears no long-lasting implications to the group, given that remedial measures implemented. The stock would register the strongest YoY EPS improvement amongst its peers (31% vs. 20%) in FY23.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower- than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 29 Apr 2022