INVESTMENT HIGHLIGHTS

• Net profit driven by lower provisions and supported by NOII growth

• NIM improved on sequential quarter basis

• General trend of improvement in asset quality

• Sluggish loans growth due to realignment

• No change to our forecast

• 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... CIMB Niaga's net profit continued to be driven by lower provisions. Its 9MFY18 net profit grew +18.0%yoy as provisions were lower by -26.8%yoy. Meanwhile, its 3QFY18 provisions fell -26.3%yoy.

...supported by NOII growth. NOII for 9MFY18 grew by +23.6%yoy with 3QFY18 NOII expanding +9.9%yoy. This relieved some of the pressure to NII as it fell -3.8%yoy in 9MFY18. The NOII growth was mainly lead by improvements of +1.1%yoy to IDR1.45t in fees and commissions income, +84.6%yoy to IDR491b in recovery, and +42.7%yoy to IDR685b in gains from forex and fixed income derivaties.

NIM holding steady. NIM improved on a sequential quarter basis coming at +14bps better. The quarter-on-quarter improvement in NIM was due to gradual loan re-pricing and average CASA growth which expanded +3.7%yoy to IDR103.5t.

General trend of asset quality improvement. Gross NPL fell - 54bps yoy to 3.41%. Although, there was a marginal increase in gross NPL (by +2bps qoq) as compared to as at 2QFY18, we believe that the general trend is towards overall improvement in asset quality. Meanwhile, corporate, MSME and consumer segments saw gross NPL declined by -130bps yoy, -60bps yoy and -10bps yoy to 1.5%, 2.9% and 2.9% respectively.

Loans growth still sluggish due realignment. Loans expanded +2.2%yoy to IDR182.8t, which slightly off pace from last quarter's +3.0%yoy. However, we understand this was partly due to ongoing realignment of its loans book to reduce exposure in auto, personal and micro loans. These segments fell -32.8%yoy to IDR6.81t, - 12.5%yoy to IDR4.28t and -1.5%yoy to IDR7.69t respectively. Meanwhile, mortgage loans continue to support loans growth as it expanded strongly at +10.0%yoy to IDR29.1t.

FORECAST

We make no changes to our forecast pending the Group's 3QFY18 result later this month.

VALUATION AND RECOMMENDATION

We were pleasantly surprised by CIMB Niaga's solid results. In particular was the improvement in NIM and NII. As such, we believe that the drag from the weakness in NII may be less than we initially anticipated. In addition, we were pleased to see continued robust NOII growth and lower provisions, which may provide support to CIMB Niaga's earnings. Therefore, we opine that CIMB Niaga may not be too much of an encumbrance to the Group's earnings, operationally. Any moderating factors to Group earnings will likely come from translation effect. We also opine that the Group's performance in Malaysia will continue to be solid. Hence, we maintain our BUY recommendation with unchanged TP of RM7.85 based on pegging its FY19 BVPS to PBV multiple of 1.4x.

Source: MIDF Research - 1 Nov 2018