CIMB Group - CIMB Niaga’s 1Q turns out better than expected HOLD

- CIMB Group Holdings Bhd’s (CIMB) 97.9%-owned Indonesian subsidiary PT Bank CIMB Niaga Tbk (CIMB Niaga) reported strong net earnings of Rp937bil (+17.7% QoQ, +28.7% YoY) in 1QFY12, boosted by good one-off treasury gains of Rp300bil arising from sale of bonds. Stripping this off, we estimate normalised annualised net earnings to be only marginally 0.9% lower than our forecast. CIMB Niaga’s net earnings contribution is 31% to our pro-rated group net earnings in 1QFY12, but without the one-off sale of bonds, we estimate core net earnings contribution at 23.6% in 1QFY12, marginally lower than 4QFY11’s 24.6% and 1QFY11’s 27.6%. 

- Loans grew 3% QoQ (ahead of industry’s 0%) and 18% YoY (below industry’s 21%), with loans growth in line with guidance of 18% to 20%. CIMB Niaga remains focused on higher-yielding segments, i.e. the micro finance segment (+19% QoQ, +220% YoY, 1.1% of total loans) and personal loans segment (+53% QoQ, +667% YoY, 0.5% of total loans). Besides this, the corporate loans (+4% QoQ, +17% YoY, 31.5% of total loans) segment benefited from a large syndicated loan in 1QFY12. NIM normalised to 5.67% in 1QFY12 (4QFY11’s 5.87% boosted by one-off recoveries; 1QFY11: 5.51%), with YoY uptick attributed to its strategy to focus on high-yielding segments. NIM is in line with guidance of 5.5% to 5.6%. CIMB Niaga remains selective in mortgage loans (+4% QoQ, +14% YoY, lower than industry’s 5% QoQ and 30% YoY) citing intense competition. 

- Deposit grew 1% QoQ (industry: -1% QoQ) and 11% YoY (industry 18% YoY). Demand deposits also did well in 1QFY12, rising 2.1% QoQ and 15.8% YoY, likely due to improved traction on some corporate deposits. But CASA contribution to overall deposit was unchanged QoQ at 44.9%.  

- Gross NPL ratio recorded a marginal uptick to 2.69% in 1QFY12, from 2.64% in 4QFY11, attributed to a loan which was already classified as impaired now moving into the non-performing loan bucket after three months. Gross impaired loans ratio improved to 3.43% in 1QFY12 from 3.61% in 4QFY11. The company raised loan loss provision expense substantially to Rp425bil or credit costs of 33bps in 1QFY12 from Rp220bil (credit costs: 18bps) in 4QFY11, citing that it had adopted a much more conservative loan loss provisioning stance in this  quarter. Looking ahead, it expects this to normalise to between the Rp200bil and RM400bil range in the next few quarters ahead.   

- Looking ahead, loans growth may slow down given that regulators will start implementing higher down-payment requirements for consumer loans from mid-2012. We sense the company may be more cautious given the higher loan loss provisioning stance, but nevertheless, CIMB Niaga enjoyed a good 1QFY12. We maintain HOLD on CIMB with fair value of RM8.00/share.   

Source: AmeSecurities