INVESTMENT HIGHLIGHTS

• Lower provisions continue to drive net profit growth

• Asset quality continued to improve stemming from better asset quality in corporate segment

• NIM remains under pressure

• Slightly better loans growth

• No change to our forecasts

• Maintain BUY with unchanged TP of RM7.85 pegging the stock to 1.4x FY19

Price-to-Book multiple Net profit driven by lower provisions. For the second consecutive quarters, CIMB Niaga's net profit was driven by lower provisions. The 2QFY18 net profit grew +20.4%yoy resulting in 1HFY18 earnings to grow +28.1%yoy.

Asset quality continued to improve. Total provisions fell - 27.1%yoy to IDR1.55t, from continued improvement in asset quality. Gross NPL fell -50bps yoy mainly due to improvement in asset quality in corporate segment where gross NPL fell -150bps yoy. Meanwhile, gross NPL at MSME and consumer segments were stable where it fell -40bps yoy respectively to 3.2% and 2.6%. Slight worry is the higher commercial segment gross NPL where it went up by +150bps yoy to 9.3%. This segment contributed 17% to the total loans book. We will not be surprise if management decide to decelerate the loans growth in this segment should gross NPL rise further.

Strong NOII growth moderate NII decline. NOII in 1HFY18 grew +32.6%yoy mainly led by income from recovery where it grew +135.3%yoy to IDR327b. In addition, we were encouraged to note that other components of NOII also showed strong growth. Discounting the recovery income, which might not be a stable income source, other NOII grew +21.3%yoy to IDR1.54t as it saw solid growth for forex & fixed income derivatives, arranger & syndication fees and transactional banking & trade finance. These grew +57.9%yoy, +193.3%yoy and +22.7%yoy to IDR390b, IDR88b and IDR81b respectively.

NIM continued to be under pressure. NIM fell another -7bps qoq. The NIM pressure stemmed from the rate hike by Bank Indonesia. As a result NII for 2QFY18 fell -8.6%yoy, while 1HFY18 NII fell -5.4%yoy. We expect that NIM will continue to be under pressure as intense competition for loans remains. However, management had guided NIM compression to hold towards 5% level.

Source: MIDF Research - 15 Aug 2018