INVESTMENT HIGHLIGHTS

• Strong performance continues supported by higher NII, controlled OPEX and lower provisions

• NIM compression in 3QFY17 but CASA growth will moderate impact

• Continue to consolidate auto loans book. Solid growth in mortgage, SMEs, commercial and corporate loans

• Asset quality better than last year

• No change to our forecast for now

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

Strong performance continues. CIMB Niaga carried forward its strong performance in 9MFY17, posting a +69.1%yoy earnings growth to IDR2.2t. The was driven by higher NII (+5.4%yoy to IDR9.37t), controlled OPEX (+0.8%yoy to IDR5.59t) and lower provisions (-16.4%yoy to IDR3.16t).

NIM compression in 3QFY17. The higher NII mainly came from growth in 1HFY17, as there were -1.1%yoy decline in 3QFY17. This was due to NIM compression in 3QFY17. While NIM improved +20bps yoy to 5.74% for 9MFY17, it fell -17bps yoy or -55bps qoq to 5.50% in 3QFY17. The NIM compression was due to the two rate cuts by Bank Indonesia and the disposal of high end macro business. However, we believe that CASA growth will moderate the NIM compression. CASA grew +6.2%yoy to IDR99.8t, while time & structured deposits grew at lower pace of +3.2%yoy to 87.5t.

Controlled OPEX and lower provisions. OPEX for 9MFY17 was well contained due to lower general & admin and advertising expenses (-5.3%yoy to IDR2.78t). Meanwhile, provisions were lower possibly due to improved situation in Indonesia.

Solid growth in mortgage, SMEs, commercial and corporate loans. Loans growth continued to be tepid with +2.7%yoy to IDR178.8t. However, this was mainly due to the consolidation of auto loans which fell -38.9%yoy to IDR10.1t. Main driver for loans growth was from mortgage (+12.1%yoy to IDR26.5t), SMEs (+14.5%yoy to IDR26.9t), commercial (+6.2%yoy to IDR30.7t) and corporate (+6.3%yoy to IDR63.8t) segments.

Slight uptick in Gross NPL but overall stable. Gross NPL came in higher by +6bps qoq to 3.95% as at 3QFY17. There was due to a slight uptick in corporate and commercial segments, where both increased by +20bps qoq to 2.8% and +8.0% respectively. However, we believe that overall, gross NPL is either trending downwards or stable. For example, corporate, commercial and MSME segment improved by -100bps yoy, -30bps yoy and -10bps yoy respectively. Meanwhile, consumer segment gross NPL have been consistently at 3.0% since 1QFY17.

FORECAST

We make no changes to our forecast pending 3QFY17 result for the Group.

VALUATION AND RECOMMENDATION

In our view, the strong result from CIMB Niaga will be a boost to the Group’s 9MFY17 earnings. Our slight concern was on the NIM compression in 3QFY17 but we believe that CASA growth may moderate its impact. We continue to like its strategy to scale down its auto and micro financing loans book which protects asset quality. As a result we note that asset quality remains stable. We believe that prospect for the Group remains solid. Hence, we maintain our BUY recommendation with unchanged TP of RM7.10 based on pegging its FY18 BVPS to PBV multiple of 1.3x.

Source: MIDF Research - 1 Nov 2017