CIMB Group Holdings - Strong set of 2Q earnings from CIMB Niaga Buy

- CIMB Group Holdings Bhd’s (CIMB) 97.9%-owned Indonesian subsidiary PT Bank CIMB Niaga Tbk (CIMB Niaga) reported a good set of 2Q net earnings of Rp1,047 (+11.7% QoQ, +27.8% YoY), driven by strong net interest income as well as lower loan loss provisions. Net earnings, if annualised, was in line with our forecast. CIMB Niaga’s net earnings contribution jumped to 35% in 2QFY12 from 31% in 1QFY12. Non-interest income was lower on a QoQ basis, but this was due to one-off treasury gain in 1QFY12. 

- Loans growth was stronger at 6% QoQ in 2QFY12 (1QFY12: 3% QoQ), but the company maintains its loans growth target of 18%-20%. Loans growth was boosted partly by demand ahead of implementation of LTV ruling in mid-2012. Main growth areas are still in the higher yielding micro financing (+20% QoQ, +150% YoY, 1.3% of total loans), personal loan (+25% QoQ, +737% YoY, 0.6% of total loans) and credit cards (+10% QoQ, +33% YoY, 2.3% of total loans) segments. Besides these, there was also healthy expansion in the corporate segment (+5% QoQ, 13% YoY, 31.1% of total loans). 

- Deposit growth was at 3.3% QoQ in 2QFY12 (1QFY12: 1% QoQ). A portion of the highcost savings deposit was reclassified as structured deposit (under time deposit), but CASA contribution to overall deposits was stable at 43.5% in 2QFY12 (1QFY12: 44.9%).  

- NIM improved significantly by +26bps QoQ to 5.93% in 2QFY12 (1QFY12: 5.67%), attributed to its efforts to withdraw from the intense competition in the mortgage and deposit segments, as well as a strategic increase in LDR to 98.8% in 2QFY12 (1QFY12: 96.5%), with drawdown in some strong quality corporate loans. The company said LDR has since moderated downwards by a couple of percentage points. NIM guidance was maintained at 5.4% to 5.6%. 

- Gross NPL ratio was lowered to 2.52% in 2QFY12 (1QQFY12: 2.69%) as was the gross impaired loans ratio to 3.29% in 2QFY12 (1QFY12: 3.43%). The better impaired loans were largely due to recoveries. Loan loss provisioning was also consequently much lower at Rp225bn in 2QFY12, in line with its guidance of normalised loan loss provisioning of Rp200bn to Rp300bn/quarter. We are  positive on CIMB Niaga’s strong set of 2Q earnings. Maintain BUY on CIMB with a fair value of RM8.70/share.  

Source: AmeSecurities