INVESTMENT HIGHLIGHTS

• 1QFY17 net profit grew of +138%yoy supported by continued robust NII growth

• NIM improvement from positive momentum on CASA

• Tepid loans growth due to reduction from auto and micro finance segments. However, solid growth in other segments

• Asset quality a concern but improving

• No change to our forecast for now

• Optimistic of the Group’s prospect. Maintain BUY with unchanged TP of RM6.40 pegging the stock to 1.2X Price-to-Book multiple

Strong start to the year. CIMB Niaga posted a +137.9%yoy increase in net profit to RP640b. This was driven by higher NII (+9.1%yoy to RP3,096b) and lower provisions (-19.5%yoy to RP1,079b). On a quarterly basis, it was driven by higher NOII (+22.8%qoq) and lower provisions (-9.7%qoq).

Better NIM from better CASA. The higher NII was mainly due to improvement in NIM by +36bps yoy to 5.71%, providing support to the tepid loans growth of +2.9%yoy to RP175.98t. The improved NIM was due positive momentum on CASA where it grew +9.2%yoy to RP98.16t. As a result, CASA ratio improved +3.69ppt yoy.

On-going reduction in auto and micro finance loans book.

The moderate loans growth was partly due to reduction of loans from auto and micro finance segment. Loans from these segments fell - 31.9%yoy to RP13.1t and -63.3%yoy to RP0.55t respectively. We understand CIMB Niaga will be targeting lower loans-to-value and more premium segment for its auto loans book going forward. We believe that this is the right move as it reduces the risk of asset deterioration in this segment.

Solid loans growth from other segments. Meanwhile, we saw solid loans growth from mortgages (+7.1%yoy to RP24.96t), credit cards (+18.0%yoy to RP8.01t), SME (+14.9%yoy to RP26.16t) and corporate segments (+9.8%yoy to RP60.77t). We noted that total loans in these segment loans grew +10.8%yoy, while its contribution to total loans book increased +4.8ppts to 68.1%. More interestingly, we found that corporate loans for investment purposes grew +16.1%yoy to RP33.88t.

Gross NPL stabilizing and improving in certain segments. GIL ratio went up by +10bps yoy to 5.07%. However, we believe that gross NPL, while elevated, is stabilizing with gross NPL ratio at only +1bps yoy to 3.91%. The elevated gross NPL ratio came from an uptick in the consumer (+1.0ppts yoy to 3.0%) and MSME (+0.5ppts yoy to 3.7%) segments. Consumer segment was affected by auto loans NPL (up +1.9ppts yoy to 3.4%) and unsecured business (up +1.9ppts yoy to 3.5%). Nevertheless, this was moderated by improved asset quality in the corporate and commercial segments where gross NPL ratio was lower by -1.3%ppts yoy to 3.1% and -0.3ppts yoy to 7.0% respectively.

Provision expenses continued to improve. Credit cost continued its downtrend coming in -32bps lower on sequential quarter basis to 2.31%. On a year-on-year basis, credit cost was lower by -54bps. We expect this improvement will be on-going throughout FY17.

FORECAST

We make no changes to our forecast pending 1QFY17 result for the Group.

VALUATION AND RECOMMENDATION

We believe that the excellent CIMB Niaga result will provide a boost to the Group’s 1QFY17 earnings. We like the fact that CASA growth remained solid. We believe that this had led to NIM being protected and contributed to the continued robust NII growth. We believe that this will remains the case for the rest of the year. In addition, we believe that loans growth will pick up in the remaining quarters as CIMB Niaga wind down its auto loans and continue to grow its other segments. Asset quality remains a concern but there were improvements. All-in-all, we continue to be optimistic on the prospect of the Group, especially in Malaysia and Indonesia. We maintain our BUY recommendation with unchanged TP of RM6.40 is based on PB multiple to 1.2x.

Source: MIDF Research - 28 Apr 2017