• 1HFY17 net profit supported by robust NII growth.

• NIM improvement despite tepid loans growth.

• Reduction of auto and micro finance segments continues. However, solid growth in other segments.

• Asset quality improving.

• No change to our forecasts for now.

• Optimistic of the Group’s prospect but already priced in. Maintain NEUTRAL with unchanged TP of RM7.10 pegging the stock to 1.3x FY18 Price-to-Book multiple.

Strong first half. CIMB Niaga posted a +87.5%yoy increase in net profit to IDR1.38t. This was driven by higher NII (+8.9%yoy to IDR6.33t) and lower provisions (-16.9%yoy to IDR2.13t).

NIM optimisation working. The higher NII was mainly due to improvement in NIM by +40bps yoy to 5.87%, despite tepid loans growth of +2.8%yoy to RP180.25t. We believe that improved NIM was contributed largely by CASA growth, as it grew +1.6%yoy to IDR94.7t and the -7.5%yoy lower fixed deposit to IDR79.66t.

Reduction in auto and micro finance loans book continues… The tepid loans growth was partly due to reduction of loans from auto and micro finance segment. Loans from these segments fell - 36.0%yoy to IDR11.7t and -57.3%yoy to IDR0.47t respectively. We believe this is the right move as it reduces the risk of asset deterioration.

…improving asset quality. Resultantly, asset quality improved with gross NPL coming down -2bps qoq and -1bps yoy to 3.89%. Corporate gross NPL appears to be down trending at 2.6% (-1.5ppt yoy and -0.5ppt qoq). Consumer and MSME gross NPL was quarterly flat at 3.0% and 3.6% respectively. Meanwhile, there was an uptick in commercial loans gross NPL (+0.8ppt qoq to 7.8%).

Solid loans growth from other segments. Meanwhile, we saw solid loans growth from mortgages (+9.4%yoy to IDR25.7t), credit cards (+13.1%yoy to IDR8.12t), SME (+12.1%yoy to IDR26.46t) and corporate segments (+10.2%yoy to IDR64.3t).

Provision expenses continued to improve. The 1HFY17 credit cost was lower by -49bps yoy. We expect this improvement will be on-going throughout FY17.

FORECAST

We make no changes to our forecasts pending 2QFY17 result for the Group.

VALUATION AND RECOMMENDATION

We believe that the strong CIMB Niaga result will positively contribute to the Group’s 2QFY17 earnings. We like the fact that NIM continued to improve despite tepid loans growth, leading to strong NII growth. We believe that this will remains the case for the rest of the year. We also like the fact that asset quality continues to improve and its strategy to scale down its auto and micro financing loans book. We believe that prospect for the Group remains solid. However, we believe that the good prospect of the Group have been priced in by investors. Hence, we maintain our NEUTRAL recommendation with unchanged TP of RM7.10 based on pegging its FY18 BVPS to PBV multiple of 1.3x.

Source: MIDF Research - 1 Aug 2017