INVESTMENT HIGHLIGHTS

• Earnings growth led by lower provisions

• NIM improved resulting in better NII growth

• Decent loans growth contributed by mortgages and SME

• No change to our forecast

• Maintain BUY with unchanged TP of RM7.55 pegging the stock to 1.4x FY19 Price-to-Book multiple

Good start to the year. CIMB Niaga's earnings in 1QFY19 grew by +7.6%yoy which was driven by lower provisions. Provisions fell - 16.2%yoy on continuous effort to improve its asset quality. Gross NPL improved by -7bps qoq and -47bps yoy to 3.04%.

Asset quality improvement came from corporate and commercial. Gross NPL for corporate and commercial as at 1QFY19 was 1.0% and 7.7% respectively. This had improved from 1.9% and 8.8% respectively as at 1QFY18. Meanwhile, there was an increase in MSME segment from 3.0% as at 1QFY18 to 3.6% as at 1QFY19. Consumer segment remained stable at 2.4%.

NIM improvement led to slight NII growth. NIM improved by +18bps yoy to 5.28% which resulted in NII growing by +0.2%yoy. However, the NII growth was an improvement from the contraction seen in FY18. We opine that this could be due to loans finally being re-priced higher. We believe that NII growth could have been better if loans grew stronger. Loans expanded +5.0%yoy to IDR187.99t as at 1QFY19, supported by expansion in mortgages (+13.1%yoy to IDR31.03t) and SME (+8.1%yoy to IDR29.78t).

NOII growth boosted income growth. NOII expanded +4.0%yoy mainly due to higher forex & fixed income derivatives income and arranger & syndication fees. These grew +9.8%yoy to IDR258b and +241%yoy to IDR106b respectively.

Slight contraction in deposits. Our concern in regards to deposits remains as deposits contracted slightly by -0.5%yoy to IDR190.6t. This was due to decline of -8.5%yoy to IDR48.1t in current account deposits. However, it was moderated by the +2.8%yoy to IDR54.3t and +2.4%yoy to IDR88.2t growth in savings and fixed deposits respectively.

Source: MIDF Research - 26 Apr 2019