INVESTMENT HIGHLIGHTS

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

• NIM compression remained since 3QFY17 but CASA growth will moderate impact

• Solid growth in mortgage and SMEs

• Asset quality improved

• No change to our forecast pending result announcement

• Maintain BUY with unchanged TP of RM7.17 pegging the stock to 1.3x FY18 Price-to-Book multiple, pending Group result expected tomorrow

Strong performance continues. CIMB Niaga maintained its strong performance. FY17 net profit grew +58.8%yoy to IDR2.98t. This was due to higher income, controlled OPEX and lower provisions.

NOII lead income growth. NOII grew +18.8%yoy to IDR3.35t due to higher recoveries and fees & commissions. These grew +131.4%yoy to IDR398b and +15.2%yoy to IDR2.02t respectively. This moderated the NIM compression in 2HFY17.

NIM compression in 2HFY17. NII growth mainly came in 1HFY17. Conversely, NII declined in 3QFY17 and 4QFY17 by -1.1%yoy and - 5.4%yoy respectively. This was due to NIM downtrend in 3QFY17 and 4QFY17. Part of the reason for the NIM compression was the two rate cuts by Bank Indonesia and the disposal of high end macro business in 3QFY17. However, we believe that CASA growth had moderated the NIM compression. CASA grew +8.4%yoy to IDR99.5t while total deposits grew +4.8%yoy to IDR189.3b.

Controlled OPEX and lower provisions. OPEX for FY17 was well contained due to lower general & admin and advertising expenses (- 3.1%yoy to IDR3.51t and -7.0%yoy to IDR254b respectively). Meanwhile, provisions were lower possibly due to improved situation in Indonesia and better asset quality management.

Mortgage and SMEs loans continued traction. Loans growth continued to be tepid with +2.8%yoy to IDR185.1t. However, this was mainly due to the consolidation of auto loans which fell - 41.1%yoy to IDR8.72t. Main driver for loans growth was from mortgage (+12.0%yoy to IDR7.0t) and SMEs (+10.7%yoy to IDR27.27t).

Asset quality stable and improving. Gross NPL improved -20bps qoq to 3.75% as at 4QFY17. This was due improvements in corporate and consumer loans book, where gross NPL was -30bps qoq and -50bps qoq better at 2.5% respectively. Meanwhile, there was a slight uptick in commercial loans book gross NPL to 8.2% from 8.0% as at 3QFY17.

FORECAST

We make no changes to our forecast pending 4QFY17 result for the Group.

VALUATION AND RECOMMENDATION

In our view, the strong result from CIMB Niaga has been a boost to the Group’s earnings up to 9MFY17 and we do not foresee 4QFY17 will be any different. Our slight concern was on the NIM compression 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 has improved. We believe that prospect for the Group remains solid. Hence, we maintain our BUY recommendation with unchanged TP of RM7.17 based on pegging its FY18 BVPS to PBV multiple of 1.3x. We are making an exception to our guide recommendation due to the fact that the Group’s result is expected to be released tomorrow.

Source: MIDF Research - 27 Feb 2018