INVESTMENT HIGHLIGHTS

• Earnings continue to improve with strong NII growth

• Asset quality continued improving

• Loans growth was supported by consumer segment

• No change to our forecast

• Maintain BUY with unchanged TP of RM6.80 pegging the stock to 1.2x FY20 Price-to-Book multiple

Continue to do better. The 1HFY19 net profit for CIMB Niaga grew by +11.8%yoy. The main driver was lower provisions and strong net income growth in 2QFY19.

Strong growth in NII. Net income in 1HFY19 grew +5.7%yoy contributed by the strong NII growth in 2QFY19 where it expanded +10.9%yoy. This was the result of NIM improving by +50bp yoy in the quarter to 5.53% as CIMB Niaga was able to reprice its loans higher. Meanwhile, 2QFY19 NOII also grew strongly at +8.9%yoy causing 1HFY19 NOII to expand +6.3%yoy. Growth in arranger & syndication fees (+96.6%yoy to IDR173b) and forex & fixed income derivatives (+34.9%yoy to IDR526b) were the main attributors.

Gross NPL ratio continue to trend downwards. Overall gross NPL ratio came in at 2.87% as at 2QFY19, compared against 3.04% as at 1QFY19 and 3.39% as at 2QFY18. Improvements came from commercial and consumer segment. However, we noted that there was an uptick in gross NPL ratio (from 1.1% as at 2QFY18 to 1.8% as at 2QFY19) for the corporate segment. We understand that this was due to one particular account. Nevertheless, this had not made a dent to the overall asset quality.

Main focus was on consumer loans. Loans book rose +2.6%yoy to IDR190.54t. It was supported by strong expansion in consumer loans where it grew +6.7%yoy to IDR51.11t. Drilling further, mortgages and credit cards grew double digits at +13.5%yoy to IDR31.75t and +10.0%yoy to IDR8.94t respectively. Meanwhile, corporate banking saw its loans book rising +2.1%yoy to IDR71.4t.

Deposits growth from time & structured deposits. Deposits grew +4.0%yoy to IDR197.85t. However, it was led by time & structured deposits which grew +9.3%yoy to IDR91.22t. This resulted in interest expense growth moderating NII growth.

FORECAST

We make no changes to our forecast pending the Group's 2QFY19 result later this month.

VALUATION AND RECOMMENDATION

The improvement in CIMB Niaga’s 1HFY19 was as we had expected. We believe that we could see further improvement in 2HFY19 with consumer and SME segments the main key area of focus for FY19. Also, its digital propositions have started to make an impact. We opine that the continuing asset quality improvement in Indonesia will continue to boost CIMB Niaga’s income resulting in more sustainable earnings growth. Overall, we believe that CIMB Niaga will provide a strong supporting role to the Group’s earnings this year. We maintain our BUY recommendation with unchanged TP of RM6.80 based on pegging its FY20 BVPS to PBV multiple of 1.2x.

Source: MIDF Research - 16 Aug 2019