CIMB  Niaga  (Niaga)’s  3Q13  net  profit  was  flat  q-o-q  (-4%  y-o-y). Operating income trend was positive, with loan growth picking up pace and NIM expanding q-o-q  following the repricing of loans. Non-interest income was also healthy, but these were offset by higher loan provision expenses.  Maintain our  BUY  call  and  MYR9.75  (14x CY14  EPS)  FV.  We see any sharp selldown on the stock as an opportunity to buy.

• Results  highlights.  Niaga reported a 3Q13 net profit of IDR1.1trn (-4% y-o-y; flat q-o-q), bringing its 9MFY13 net profit to IDR3.2trn (+4% y-o-y). Operating income growth was healthy, +9% y-o-y and +8% q-o-q, on the back of  higher net interest  and non-interest income. Loan growth picked up pace with annualised growth  of 9%  (vs 1H13’s  annualised 7.6%),  led by the retail and commercial segments. Meanwhile, NIM  widened  by an estimated 22bps q-o-q (-42bps y-o-y), which was all the more impressive given that the loan to deposit ratio declined to 93% from 98.2% at endJune  2013.  Management  attributed  the  NIM  expansion  to  loans  being repriced  following  the  earlier  hikes  in  the  policy  rate.  The  stronger operating  income,  however,  was  dented  by  higher  provision  expenses (+97% y-o-y; +94% q-o-q), reflecting the rise in special mention accounts and  gross  NPLs.  That  said,  this  merely  brought  Niaga’s  9MFY13 provision expenses to the 9MFY12 level.
• Briefing  highlights.  Management  retained  its  guidance  of  10%  loan growth for 2013  vs 2012’s  15.7%, citing  tougher macro conditions and tighter credit underwriting standards  as well as  regulatory requirements for the consumer segment (eg lower LTV for property loans) . Niaga sees the possibility of a further 25-50bps hike in policy rate by year-end, which would  put  pressure  on  NIM.  Otherwise,  the  current  NIM  can  be sustained.  Finally,  management  said  the  rise  in  special  mention accounts was across the board  (ie consumer, SME and corporate) and due to delays in loan repayment. No particular segment stood out among the special mention cases and Niaga said it was too early to tell whether the accounts would deteriorate further and turn into NPL.
• Forecasts  and  investment  Case.  No  changes  to  our  earnings forecasts.  Niaga’s  stronger  operating  income  bodes  well  for  the  group but  it  remains  to  be  seen  whether  credit  cost  from  the  other  regional operations can stay low to cushion the jump in Niaga’s 3Q13 provisions. While  the  stock  faces  headwinds  from  Indonesia’s  challenging  macro conditions  and  soft  capital  market,  among  others,  valuations  are  still decent. Hence, we think any sharp selldown is an opportunity to BUY.

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Company Profile
CIMB is a fully integrated financial services group and the second largest domestic bank in Malaysia. The group's core markets are 
Malaysia, Indonesia, Singapore and Thailand.

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Source: RHB