KEY INVESTMENT HIGHLIGHTS

• Robust earnings growth despite MSS cost. "Business As Usual" earnings growth continue to be strong

• Main contributor was the recovery in NII which was due to NIM improvement and decent loans growth. NOII also saw strong growth due to sale of NPL in 3QFY19

• Asset quality continue to improve

• Deposits came in lower which is a concern, but savings account expansion was a moderating factor

• No change to FY19 and FY20 earnings forecast

• Maintain BUY with unchanged TP of RM6.30

Steady growth despite additional OPEX. CIMB Niaga reported steady 9MFY19 earnings growth of +3.4%yoy. This was despite the additional OPEX incurred in 3QFY19, which was an MSS cost of IDR359b. Discounting this cost, the 9MFY19 earnings grew even stronger at +13.7%yoy.

Growth driven by robust income. Net income grew +6.8%yoy due to improvements in both NII and NOII. We were pleased that 9MFY19 NII seems to have recovered from last year to grow +5.1%yoy. Main contributor was the +25bp yoy improvement in NIM regardless of the strings of policy cuts in Indonesia. Meanwhile, NOII grew +12.1%yoy in 9MFY19 which came from the strong +22.8%yoy expansion in 3QFY19. This was due to sale of NPLs in the quarter, resulting in 9MFY19 recoveries to jump +54.4%yoy to IDR758b.

Loans growth led by consumer. Loans growth have also supported the NII expansion. Overall loans grew at a decent pace of +4.9%yoy to IDR191.7t. It was supported by mortgages and credit cards in consumer banking, and from corporate banking. Mortgages and credit cards loans grew +12.6%yoy to IDR32.8t and +11.3%yoy to IDR9.2t respectively resulting in consumer banking to expand +8.5%yoy to IDR52.6t. Meanwhile, corporate banking grew +8.3%yoy to IDR71.6t.

Asset quality continue to improve. CIM B Niaga continue to improve its asset quality. The gross NPL ratio as at 3QFY19 was 2.62% vs. the 2.87% and 3.41% registered as at 2QFY19 and 3QFY18 respectively. The improvements came from mainly the commercial and consumer segments.

Lower deposits a concern. Total customer deposits fell -2.1%yoy to IDR190.3t. We were pleased to note that the more expensive time deposits & structured deposits was reduced by -2.9%yoy to IDR88.2t. However, current account deposits also fell -8.9%yoy to IDR45.7t. The moderating factor was the +5.9%yoy to IDR56.4t growth in savings deposits.

No change in earnings forecast. We are maintaining our earnings forecast for FY19 and FY20 as the Group will be announcing its result later this month.

Source: MIDF Research - 1 Nov 2019