CIMB Niaga’s FY22 results beat expectations, supported by non interest income (NOII). Against growing market concerns, the group expects its solid fundamentals to potentially allow it to gain market share from other market leaders. We maintain our forecasts, TP of RM6.40 and OUTPERFORM call for CIMB. The stock is one of our 1QCY23 Top Picks. FY22 beat expectations. Its 91.5%-owned CIMB Niaga (Niaga) reported FY22 earnings of IDR5.04t which exceeded consensus estimate by 9%. The positive deviation could be due to sustained strength in NOII streams, albeit with some diminishing marketable securities gains. Typically, Niaga makes up 15-20% of CIMB Group’s PBT.

YoY, FY22 net interest income gained 3% mainly thanks to the 8% expansion in its loans base which offset a 4 bps erosion in interest margins (to 4.71%), amid a competitive rate environment in Indonesia. Meanwhile, NOII growth of 27% was chiefly driven by better forex and derivatives performance as well as wider loans recovery. Cost-income was flattish at 47.5% as further personnel and technology investments moved in tandem with the higher top-line. Credit cost also improved to 189 bps (-43 bps) on easing concerns in asset quality. All in, Niaga’s FY22 core net profit came in at IDR5.04t (+20%).

Hopeful for sustained success. The group credited its solid delivery in FY22 to its frontline strategies in addition to digital enhancement. Going forward, the group anticipates that its investments will continue to contribute, but possibly at a slower pace, due to tightening macro conditions as well as increasing competitive stress. Broadly, the group believes further traction could still be gained from its wider customisable services offered by digitalisation, to supplement its broadening CASA base. The group is also cognizant of inflationary pressures possibly undermining operating efficiencies but expects its built-in cost control measures to at least keep levels sustainable. Amongst its guidances, the group opines to deliver: (i) loan growth of 6- 8% (from FY22: 8%), (ii) interest margin of 4.6%-4.8% (from 4.7%), and credit cost of 1.6%-1.8% (from 1.9%).

Forecasts. Post Niaga’s results, we leave our earnings forecasts for CIMB unchanged for now, pending group-level earnings results to be released end-February 2023.

Maintain OUTPERFORM and TP of RM6.40. Our TP is based on an unchanged GGM-derived PBV of 0.88x (COE: 11.0%, TG: 3.0%, ROE: 10.5%) with an applied 5% premium granted by CIMB’s 4-star ESG ranking thanks to headways in green financing. Fundamentally, the stock is supported by its regional diversification, especially in terms of NOII which most of its peers lack. CIMB’s return to double-digit ROE could be indicative of its prospects, led by better forward earnings growth (27% vs. industry average of 23%) while offering attractive dividend yields (6%) in the medium-term. CIMB is one of our 1QCY23 Top Picks.

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) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 20 Feb 2023