CIMB Niaga (Niaga) reported 1Q13 net profit of IDR1.05trn (+13% y-o-y;   -7% q-o-q). Despite a muted start to the year, we would not read too much into the figures as the results have been distorted by Niaga’s decision to build up liquidity in lieu of its healthy loan pipeline. We give management the benefit of doubt that loan growth would pick up ahead. Fair value of MYR8.70 (13x CY13 EPS) and Trading Buy call maintained.

¨      Result highlights. 1Q13 operating income was muted (+2% y-o-y; -1% q-o-q). Annualised loan growth was just 4.6% (+13% y-o-y) due to chunky corporate loan repayments (mainly coal sector) but the consumer and commercial segments reported decent growth of 9% and 12.7% respectively. 1Q13 NIM slipped an estimated 58bps q-o-q (-54bps y-o-y) as Niaga built up liquidity in lieu of its healthy loan pipeline. Annualised deposit growth was 43% (+25.6% y-o-y), resulting in LDR falling to 85.6% from 93.8% at end-2012. Non-interest income was down 16% y-o-y in the absence of lumpy bond gains last year but up 9% q-o-q thanks to stronger treasury income. With the weak income growth, CIR deteriorated to 47% (4Q12: 43.6%; 1Q12: 46.1%). Provision expense was a bright spot, down 33% y-o-y and 11% q-o-q.

¨      Asset quality and capital. Gross impaired loan ratio rose 16bps q-o-q to 2.84%, which Niaga attributed to seasonality and a corporate account being classified as impaired. LLC was 91.4% (4Q12: 96.4%). Notwithstanding the above, Niaga remains comfortable with asset quality. CAR at end-1Q13 was 16.1% (end-2012: 15.2%).

¨      Briefing highlights. Management emphasised that the NIM contraction was largely driven by deposit growth outpacing loan growth, resulting in the lower LDR (vs. Niaga’s optimal level of 95%). Loan demand remains strong across the board, i.e. consumer, commercial and corporate, with Niaga guiding for mid-high teens loan growth. Other guidance provided includes ROE of 18-20% and NIM of about 5.6%. The advisory pipeline is also healthy for both debt and equity. Assuming loan growth picks up and Niaga allows the LDR to rise, these could lead to a meaningful expansion in NIMs ahead, in our view.

¨      Forecasts and Investment Case. No change to our earnings forecasts for now. Niaga contributed 32% to group PBT in FY12. Fair value of RM8.70 (13x CY13 EPS) and Trading Buy call maintained.

Source: RHB