Stronger earnings

CIMB Niaga starts the year on a stronger foot. The bank reported 1Q net profit of Rp640mn vs. Rp269mn a year ago. The better performance was underpinned by a combination of: 1) steady operating income growth from improved net interest income (NII), 2) modest operating expenses growth of 2.8% YoY, and 3) better credit charges. ROE strengthened to 7.4%, from 3.6% a year ago.

NIM continues to widen

Gross loans grew by 2.9% YoY despite the soft environment. While the increase was below the industry’s growth of between 7-8%, CIMB Niaga continued to focus in targeted areas such as mortgages, credit cards, personal loans, SME and corporate banking - for better asset quality and margin control. The bank reported steady increase in the net interest margin (NIM), which widened from 5.35% to 5.71%. The positive momentum on CASA balances (+9.2% YoY) also contributed to broader NIM. Meanwhile, CIMB Niaga’s pricier time and structured deposits contracted by 5.9% YoY.

Operating expenses kept lean

The bank reported stronger fees and commissions (+9.1% YoY) along with improvements in arranger and syndication fees and recoveries. Helping to support bottomline growth, management kept expenses lean. Total operating expenses increased by 2.8% YoY as higher personnel cost (+4.5% YoY) and general and admin expenses (+2.4% YoY), were muted by a 15.2% YoY decline in advertising and promotional expenses. As a result, Niaga’s cost-to-income (CTI) ratio improved to 49.1% in Mar 2017 from 51.3% a year ago.

Asset quality improves

CIMB Niaga continued to show improvement from proactive asset quality management. Although credit charges improved by some 2.3% YoY, we note that headline gross impairment ratio stood at 5.07%, an increase from 4.97% in 1Q FY16. However, compared to 4Q FY16, the gross impairment ratio improved from 5.24%. Meanwhile, the loan loss coverage expanded to 117.6% from 116.1% a year ago. Management noted that credit charge could still remain relatively elevated given the economic environment. Elsewhere, the capital position strengthened with CAR increasing 45 bps YoY to 18.46%

CIMB Thai posts lower 1Q FY17 Profit

Separately, CIMB Thai, posted weaker 1Q FY17 results. Net profit decreased to THB 121.2mn from THB 327.3 mn a year ago on the back of: 1) softer consolidated operating income (-5.6% YoY), and 2) increase in provisions. The gross NPL ratio stood at 5.3% from 6.1% while loan loss coverage ratio increased to 81.2% as at 31 March 2017 from 77.3% at the end of December 2016. While overall operating income contracted mostly on slower treasury transactions and absence of gains on available-for-sale securities - net fee and service income was in growth pace, up by 27.6% attributable to increase in fees from debt capital market, mutual fund and hire-purchase. NII also picked up by 3.0% from better funding cost management as NIM improved to 3.77% from 3.72% a year ago.

No change to earnings estimates

We expect CIMB Niaga’s good result to contribute positively to the group. We note that PBT contributions from Indonesia has widened to around 17% in 2016 from 8% in 2015. Nevertheless, we make no change to our earnings estimates pending CIMB’s upcoming 1QFY17 results announcement. TP is maintained at RM6.10. This translates to an implied FY17 PBV of 1.14x. CIMB is currently trading at around 1.0x PBV, a slight discount to the industry’s 1.16x. BUY maintained on the back of attractive valuations.

Key upside/downside risks to our fair value include: 1) rising asset quality risks in Thailand, Singapore and Indonesia, 2) pick up in treasury and capital market activities, 3) more severe-than-expected margin compression especially in Indonesia, and 4) successfully reduce cost to below the targeted 53% CTI, and 5) other external risk factors due to uncertainties in the global market

Source: TA Research - 28 Apr 2017