INVESTMENT HIGHLIGHTS

• Strong performance from lower provisions and NOII growth.

• NIM compression from intense pricing competition.

• Loans growth lifted by corporate and commercial.

• Asset quality continues to improve.

• No change to our forecast.

• Maintain BUY with unchanged TP of RM7.80 pegging the stock to 1.4x FY18 Price-to-Book multiple.

Earnings growth led by lower provisions and NOII expansion. CIMB Niaga's earnings continue to be robust as 1QFY18 net profit grew +37.0%yoy to IDR877b. This was mainly due to lower provisions and higher NOII. 

Lower provisions due to better asset quality. Total provisions fell -21.2%yoy to IDR850b. This could have stemmed from continued improvement in asset quality. Gross NPL fell -24bps qoq and -40bps yoy to 3.51%. Improvement mostly came from the corporate (-60bps qoq and -120bps yoy to 1.9%) and MSME (-50bps qoq and -70bps yoy to 3.0%) segment. Management expects that asset quality will continue to improve in the next coming quarters.

Strong NOII growth. NOII grew +38.5%yoy to IDR992b to moderate the pressure on NII which fell -2.0%yoy to IDR3.03t. The main driver was higher recoveries and forex & fixed income derivatives. These grew +278.8%yoy to IDR197b and +58.8%yoy to IDR235b respectively.

NIM compression continued. NIM continued its downtrend since 3QFY17. For 1QFY18, the NIM compression was due to intense competition in the mortgage, corporate and MSME segment affecting pricing. Management guided NIM compression to continue towards 5% level.

Corporate and commercial lifted weak loans growth. Loans growth continued to be weak at +1.8%yoy to IDR179.1t. This was mainly due to the continued consolidation of auto loans which fell - 39.6%yoy to IDR7.94t. The weak loans growth was lifted by corporate (+7.3%yoy to IDR65.2t) and commercial (+4.9%yoy to IDR30.7t). Also, mortgages grew +9.9%yoy to IDR27.4t. Going forward, the management expects loans growth to pick-up in coming quarters due to infrastructure project financing and loans syndication pipeline.

Deposit growth remained strong. Total deposits grew +8.8%yoy to IDR191.5t. This was due to healthy growth in both CASA and structured deposits. The time and structured deposits grew +10.5%yoy to IDR86.1t. Meanwhile, CASA grew at +7.4%yoy to IDR105.4t.

FORECAST

We make no changes to our forecast pending the Group's 1QFY18 result.

VALUATION AND RECOMMENDATION

As we had expected, CIMB Niaga continue to post strong result. We believe that the earnings performance from CIMB Niaga will provide a boost to the net profit of Group. Our only concern in Indonesia is the intense loans pricing competition. However, we believe that continued robust CASA growth may moderate its impact, with thet prospect for the Group remains solid. Furthermore, the results from its operations in Indonesia and Thailand suggest that there will be minimal drag to earnings this year. Hence, we maintain our BUY recommendation with unchanged TP of RM7.80 based on pegging its FY18 BVPS to PBV multiple of 1.4x.

Source: MIDF Research - 26 Apr 2018