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Tuesday, February 21, 2017

CIMB Group Holdings Berhad - CIMB Niaga: Turning the Corner

Author: PublicInvest | Publish date: Tue, 21 Feb 2017, 09:20 AM

Normal order of business is seemingly returning to the Group’s Indonesian operations so heavily challenged by asset quality issues amid a weak operating environment as sustainable QoQ improvements are being seen on most operational fronts. Full-year 2016 net profit of IDR1.9trn on a business-as-usual basis (+119.0% YoY) was underpinned by an 8.6% expansion in net operating income and 7.2% decline in provision expenses. Loans growth is still weak at 1.6%, though acceptable in light of the prevailing environment. Of some encouragement is the steadying asset quality, with most business segments recording improvements. . Cost and asset quality management remain the key priorities for now, suggesting near-term growth prospects appearing relatively muted. We do see the fundamentals of the Group improving over the longer however, given its on-going T-18 initiatives and like the momentum it is starting to achieve. Our Trading Buy call is affirmed with target price unchanged at RM5.25, share price movements still being largely range-bound supported by its inexpensive valuations
A 6.2% YoY growth in net interest income came as a result of a healthy funding profile and improved liability management (CASA deposits +9% YoY) as loans growth remained relatively tepid. Capital market volatilities was a big plus, with foreign exchange and fixed income derivative-related contributions seeing a robust 169.2% YoY spike (to Rp673bn) in helping non interest income expand 20.1% YoY (to Rp2.82tln). Operating expenses were also under control as a subdued 1.9% YoY increase saw cost-to-income ratio settling at 49.4% (on a business-as-usual basis) for the year.
Net interest margins (NIMs) rose a further 10bps QoQ to 5.64% in (3QFY16: 5.54%), a large part owing to the improved CASA ratio. Management’s view of the economic environment still being tough in 2017 and the competitive landscape intensifying will see margins remaining under pressure, with expectations of NIMs coverging toward the 5% level for 2017. Loans growth will be sub-industry at high single-digits, driven by the SME and consumer banking segments.
While 2016 saw a 7.2% decline in provisioning levels, the absolute amount remains high in light of the weak environment. Gross impaired loans ratio is correspondingly higher at 5.24% (3QFY16: 5.20%). Improvements in the corporate and commercial segments saw gross and net NPL ratios decline to 3.89% (3QFY16: 4.21%) and 2.16% (3QFY16: 2.39%) respectively. Special mention loans declined to 6.60% (3QFY16: 7.48%) as the Group achieved some measure of success in restructuring problematic loans, particularly in the hotel, agricultural and palm oil segments. Loan loss coverage is now at 117.68% (3QFY16: 107.00%).

Source: PublicInvest Research - 21 Feb 2017

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