KUALA LUMPUR: PublicInvest research is optimistic of longer-term prospects for CIMB Group Holdings Bhd
's Jakarta arm, and maintained its outperform call on the group with an unchanged target price of RM6.50.
The research house said in a morning note that CIMB Niaga has seen relatively subdued income in 2019 given the recent conclusion of Indonesia's presidential elections which curtailed activity, coupled with competitive funding pressures caused a spike in interest expenses, which weighed on net interest income growth.
1QFY19 net profit benefited from lower provisions, which fell 16.2% year-on-year (y-o-y)
Operating income rose 1.1% y-o-y, driven mainly by non-interest income growth, which gained 4% y-o-y.
"Higher arranger and syndication fees (+241.9% YoY, +488.9% QoQ) is a major contributor, but a pace which is not expected to be sustainable however, though likely encouraging going forward," said PublicInvest.
According to the research house, Other financial highlights include:
Net interest margin (NIM) saw a 16bps uptick to 5.28% during the quarter, benefitting from a re-pricing of its asset base following last year’s cumulative 175bps rate hike.
Interest income is 4.8% higher y-o-y. Industry-wide deposit competition is causing a noticeable strain to funding costs however, reflected by the sharp 11.9% YoY jump in interest expense.
Current account andsavings account (CASA) optimisation and digital-based propositions will be major lines of defense against margin erosions.
CASA ratio is a healthy 53.74% (4QFY18: 52.61%). Long-term NIMs is targeted to average about 5%.
Loans outstanding slipped 0.3% q-o-q,with activity curtailed by the recently-concluded Presidential and Legislative elections as mentioned earlier.
Y-o-y growth is an encouraging 5%, with the mortgage (+13.1% YoY) and corporate (+6.6% YoY) segments key drivers.
With incumbent President Joko WIdodo likely to return as leader, and armed with fresh growth initiatives in tow, infrastructure-related lending may feature more prominently going forward.
Continued focus will also be on its Consumer and SME franchises, while the Group’s auto book is likely to start seeing expansions 3QFY19 onward following the successful rebalancing of its portfolio.
Asset quality risks are benign, with indicators continuing to show improvements.
Gross impaired loan and gross non-performing loan ratios are 3.91% (4QFY18: 4.05%) and 3.04% (4QFY18: 3.11%).
An uptick in special mention loans to 4.40% in 1QFY19 (4QFY18:3.98%) is mostly timing-related.