The group’s 97.9%-owned subsidiary CIMB Niaga reported full-year earnings that were ahead of estimates. The key takeaways include stabilising NIM but a negative deposit growth lag that could slightly dampen funding cost in 2H2012. Maintain BUY, at an unchanged FV of RM8.53 (2.3x P/BV, 16.7% ROE).
CIMB Niaga sees selective growth. CIMB Niaga reported strong 1HFY12 earnings growth of 28% y-o-y and a 2Q12 sequential growth of 12% q-o-q. The annualized results were ahead of market expectations by 31%. However, the numbers were partially bolstered by a lumpy IDR300bn in treasury trading and forex income in 1Q12, which helped propel a 43% y-o-y increase in 1HFY12 non-interest income. As a result, 2Q12 non-interest income declined 26% q-o-q in view of the high base in 1Q12.
Focus on profit rather than beating industry loans growth. Despite registering a below-industry loans growth of 18% y-o-y (industry: 22% y-o-y), improved yield management on mortgage loans as well as focus on the higher margin micro financing and credit cards segments boosted Niaga’s net interest margins (NIM) by 26bps q-o-q vs the industry’s 18bps q-o-q expansion. This led to a commendable 13% q-o-q increase in net interest income. That said, management is retaining its full-year 5.4% to 5.6% NIMs guidance as potential fund raising plans in 2H2012 coupled with intensifying deposit competition could marginally crimp NIMs in 2H2012.
Asset quality largely intact. Gross impaired loans across all key lending segments continued to reflect a sequential improvement, with the group’s gross impaired loans ratio declining 14bps to 3.29% q-o-q. Given 1Q12’s pre-emptive provisioning, relatively benign NPL and write-backs in the current quarter, overall provisions fell 47% q-o-q.
Resolution to single shareholding cap. Following Bank Indonesia’s latest announcement in relation to the single shareholding cap, management confirmed that it will be exempted from paring down its stake in CIMB Niaga to 40% as the new ruling does not apply retrospectively and that the group has met the two highest corporate governance and financial health ratings.
Keeping loans growth target at 18%. The key negative takeaway from CIMB Niaga’s 2Q12 results was the fact that its deposit growth of 11% y-o-y continued to lag its loans growth of 18% while group LDR inched up to 98%. This could put pressure on 2H2012 funding cost as the bank may have to compete more aggressively to shore up its liquidity base to sustain the 18% loans growth target, or slow down its loans growth in 2H2012. That said, management indicated that the LDR improved in July to a more comfortable 96%.
Source: OSK
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