CIMB Group Holdings - CIMB Niaga: Strong Close, Slowing Lead

Date: 
2024-02-22
Firm: 
KENANGA
Stock: 
Price Target: 
6.30
Price Call: 
BUY
Last Price: 
6.61
Upside/Downside: 
-0.31 (4.69%)

CIMB Niaga’s FY23 net profit was within expectations but with FY24 targets possibly hinting of easing growth trajectory. For the time being, the group believes it has a strong grasp in asset risks containment and may be in a position to benefit from interest rates cuts to soften cost of funds. We maintain our forecasts, GGM-derived TP of RM6.30 and MARKET PERFORM call for CIMB.

FY23 within expectations. CIMB’s 91.5%-owned CIMB Niaga (Niaga) reported FY23 earnings of IDR6.47b which made up 102% of consensus full-year estimate.

YoY, FY23 net interest income slightly declined (-1%) in spite of a larger loan and shariah financing book (+9%) as NIMs softened (4.53%, -18bps) owing to higher cost of funds amidst flattish asset yields. On the flipside, non-interest income (-7%) reported fewer fair value gains but were cushioned by greater loan recoveries. Meanwhile, cost-toincome ratio improved to 45.7% (-1.8ppt) as technology and administrative expenses were optimised. Chiefly supported by the dip in credit cost to 90bps (-99bps) from better asset quality conditions, overall FY23 earnings closed at IDR6.47b (+28%).

QoQ, 4QFY23 similar trends persisted whereby books continued to expand but were crimped by lower margins. That said, credit cost did see an increase to 37bps (+10bps) on greater provisions to increase NPL coverage. This led to 4QFY23 earnings to come in at IDR1.57b (- 6%).

Niaga’s outlook. Niaga continues to deliver solid earnings with strong leverage coming from it being a leading bank in Indonesia. Tapping onto sustained demand for consumer and corporate loans, it managed to surpass its earlier 8% loans growth target (achieving 8.5%). That said, there could be some moderation in FY24 indicated by its 5%-7% guidance. Additionally, NIM pressures may persist with a lower range of 4.2%-4.4% provided, should asset yields not be able to keep pace with funding cost. On the flipside, the group opines that any downward adjustment to interest rates may be opportunities to expand by diluting deposit rates. Credit cost expectations are to remain flattish (1.0%- 1.1%), having drastically improved from past levels of 1.6%-1.8% as the group had focused on sustainable customer acquisitions without compromising asset quality. The group did not also discount strategic inorganic growth as an avenue for the long-term viability of the group.

Forecasts. Post-Niaga’s results, we leave our earnings forecasts for CIMB unchanged for now, pending group-level earnings results to be released end-Feb 2024.

Maintain TP of RM6.30. Our TP is based on an unchanged GGMderived FY24F PBV of 0.92x (COE: 11.2%, TG: 3.5%, ROE: 10.5%). We also applied a 5% premium granted by CIMB’s 4-star ESG ranking thanks to headways in its green financing. Fundamentally, the stock is supported by its regional diversification, especially in terms of NOII which most of its peers lack. CIMB’s return to double-digit ROE could be indicative of its prospects, led by better forward earnings growth (21% vs. industry average of 8%) while offering attractive dividend yields (c.6%) in the medium term. That said, we believe its merits could have been fairly priced following the reemergence of foreign shareholders into Malaysian equities, stabilising CIMB’s risk-to-reward. Maintain MARKET PERFORM.

Risks to our call include: (i) higher/lower-than-expected margin squeeze, (ii) higher/lower-than-expected loan growth, (iii) better/worse-than-expected asset quality, (iv) slowdown in capital market activities, (v) currency fluctuations, and (vi) changes to the OPR.

Source: Kenanga Research - 22 Feb 2024

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