CIMB Niaga’s 1HFY24 net profit was within expectations. Niaga continues to find balance between healthy asset yields while keeping funding costs competitive, with saving grace from its strict asset quality management. We maintain our forecasts, GGM-derived TP of RM7.60 and OUTPERFORM call for CIMB. It is one of our 3QCY24 Top Picks.

1HFY24 within expectations. CIMB’s 92.5%-owned CIMB Niaga (Niaga) earnings of IDR3.45b made up 49% of consensus full-year estimate.

YoY, 1HFY24 net interest income declined by 4% as NIMs eased (4.23%, -46bps) from higher funding costs which offset the gains from a higher loans base (+6%). Non-interest income also declined (-8%) on narrower comparative trading performances. On the flipside, due to credit costs coming off to 81 bps (-70 bps) from a better asset quality environment, 1HFY24 net earnings closed at IDR3.45b (+5%).

QoQ, 2QFY24 total income was flattish as while the group was able to raise its loan yields and NIMs (+1 bps), this was mitigated by slower loan recoveries. Net profit for the period still increased by 3% on the back of lower operating costs that likely stemmed from streamlining its branch network.

Niaga’s outlook. While we gathered that the group is able to progressively keep asset yields more reasonable, persistent pressures for funds are keeping deposit rates high. Meanwhile, Niaga’s loans book will likely continue to see better traction in non-mortgage consumer loans with SME and corporate demand likely supported by stronger economic prospects. In spite of higher inflows to its portfolio, Niaga may likely see extended benefit from its prudent asset quality controls to help make up for ongoing topline challenges. On the other hand, strict cost discipline has so far been able to generate lower cost- to-income levels for the group.

Forecasts. Maintained.

Maintain OUTPERFORM and TP of RM7.60. Our TP is based on an unchanged GGM-derived PBV of 1.05x (COE: 11.2%, TG: 3.5%, ROE: 11.5%) against our FY25F BVPS of RM6.91. We also applied a 5% premium granted by CIMB’s 4-star ESG ranking, with the abovementioned emboldening our views for CIMB to be amongst the forefront in long-term sustainability efforts. 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 while offering attractive dividend yields (c.6%) in the medium term. CIMB is one of our 3QCY24 Top Picks.

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

Source: Kenanga Research - 1 Aug 2024