CIMB Niaga (Niaga) reported 1Q14  net profit  of IDR1.10trn (+4%  y-o-y; +3% q-o-q).  While a slow start to the year, Niaga expects a stronger 2H. Already, corporate lending has started to gather pace. Liquidity remains comfortable  while  the  gross  impaired  loan  ratio  was  stable.  Niaga’s ongoing focus on digital banking is expected to help grow CASA and control costs. Maintain BUY with GGM-derived FV of MYR8.50.

• Results highlights.  Niaga reported 1Q14 net profit  of IDR1.10trn (+4% y-o-y; +3% q-o-q) with growth largely driven by lower credit cost of 52bps due to writebacks  (1Q13: 80bps; 4Q13: 95bps).  Loan growth was 9.5% y-o-y,  driven  by  the  corporate  (+13%  y-o-y)  and  SME  (+15%  y-o-y) segments.  We estimate net interest margin (NIM) compressed by  4bps y-o-y  (-16bps  q-o-q)  mainly  due  to  higher  average  funding  cost.  Noninterest income rose  3% y-o-y (+2% q-o-q)  led by higher recoveries,  but overheads  (+10%  y-o-y;  +5%  q-o-q)  were  under  inflationary  pressure leading  to  the  cost-to-income  ratio  deteriorating  to  50%  (1Q13:  47%; 4Q13: 47%). Total deposits fell 4% y-o-y (-1% q-o-q) and hence, the loan to  deposit  ratio  (LDR)  rose  380bps  q-o-q  to  97%.  Asset  quality  was broadly  stable  with  the  gross  impaired  loan  ratio  at  3.1%  (end-2013: 3.2%), while impaired loan loss coverage was 82% (Dec 2013: 80.8%).
• Briefing highlights.  Niaga  guided for loan growth of 13-15% this year, led by the corporate segment, with NIM compression expected at around 20-30bps.  NIM  pressure  would  stem  from  competitive  pressures  on funding  cost,  but  mitigating  factors  include  better  management  of  the loan  pipeline,  repricing  of  loans  and  focus  on  digital  banking  to  drive CASA  growth.  Niaga  also  highlighted  a  shift  in  strategy  in  growing corporate loans, where focus is now on trade loans (vs investment loans previously).  The  short-term  nature  of  such  loans  allows  Niaga  to  react quicker  to  changing  market  conditions  and  for  repricing  purposes. Management  also  said  that  the  higher  LDR  stemmed  from  Niaga allowing the USD LDR to rise to 72% from 65% at end-2013, as Niaga is now more positive on the outlook. Liquidity is generally comfortable, with the  IDR  LDR  at  90%,  while  Niaga  targets  group  LDR  of  95%.  Finally, Niaga highlighted that apart from CASA growth, its efforts on branchless and  digital  banking  are  also  expected  to  help  contain  costs  as  well. Overall,  management  expects  a  softer  1H14  due  to  the  election,  but 2H14 should be stronger.
• Forecasts and investment case.  Earnings forecasts unchanged;  keep BUY with FV of MYR8.50, based on the Gordon Growth Model (GGM).

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.

Source: RHB