CIMB Niaga (Niaga)’s 4Q13 net profit was flat q-o-q (-5%  y-o-y).  Asset quality held up in 4Q13 while full-year credit cost  came in at the lower end of guidance. Niaga is cautiously optimistic on the outlook as recent macroeconomic  data  has  been  positive  and  improving  risk-adjusted returns  on  lending  should  support  loan  growth  ahead.  Maintain  BUY, with our FV unchanged at MYR8.90 (14x CY14 EPS)..

• Results highlights.  Niaga reported a  4Q13 earnings  of IDR1.1trn (-5% y-o-y;  -1% q-o-q), bringing FY13 net profit to IDR4.3trn (+1% y-o-y). We estimate net interest margin (NIM) compressed by 17bps q-o-q (-46bps y-o-y)  on  higher  average  funding  cost  (+43bps  q-o-q),  cushioned  by higher  average  asset  yield  (+21bps  q-o-q).  SME  and  corporate  loan yields were re-priced up in Dec  2013  but the impact was not significant for the quarter.  Absolute gross  non-performing loans (NPL)  and special mentioned loans were broadly stable q-o-q. However, the gross impaired loan  ratio,  which  includes  performing  loans  that  have  yet  to  turn  nonperforming,  rose by 40bps q-o-q to 3.2% following the adoption of  more stringent classification criteria  in 4Q.  Overall,  4Q13  credit cost  was kept in  check  (4Q13:  95bps  vs  3Q13:  101bps;  4Q12:  93bps)  while  FY13 credit cost of 83bps was at the lower end of the 80-100bps guided range.
• Briefing highlights. Niaga appeared cautiously optimistic on the outlook ahead.  Recent  macroeconomic  indicators  and  the  recovery  of  the  IDR are positives while interest rates appear toppish following the  policy rate hikes  (to  7.5%  from  5.75%)  last  year.  Thus,  any  further  hikes  are  not expected to be as significant as in 2013. Loan growth is expected to pick up pace this year, driven by corporate lending. The corporate segment grew  just  1%  y-o-y  in  2013  as  Niaga  adopted  a more cautious stance but,  following  the  recent  re-pricing  of  the  corporate  loan  book,  risk adjusted  returns  are  now  more  palatable.  That  said,  it  expects  loan growth to trend slightly below industry’s mid-teens levels but it should still be better than 2013’s 8%. Management did not provide any guidance on NIMs but liquidity tightness could exert some pressure. In terms of credit cost, Niaga aims to keep this within 80bps. Finally, there was not much management could comment  at this juncture  on the recent  listing rules change  that  requires  listed companies to have a 7.5% free float   at least (Niaga’s free float is about 2%). Companies have 24 months to comply.
• Forecasts and investment case. No changes to our earnings forecasts. We think any sharp selldown is an opportunity to BUY.

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