CIMB Niaga (Niaga) reported a sequentially unchanged 3QFY24 net profit of Rp1.73tln (+3.4% YoY, +0.0% QoQ), with a key differential YoY and QoQ being relatively higher non-interest income. Cumulative 9MFY24 net profit of Rp5.13tln is higher by +4.7% YoY. Improvements continue to be seen in its cost-income ratio at 43.0% (below guidance of 45.0%), though management lowered its guidance for net interest margin and return on equity. Credit cost guidance was raised meanwhile, reflected by relatively steadier loan loss provisions. We remain affirmed of Niaga and CIMB Group's longer-term prospects, underpinned by its ongoing growth initiatives. We maintain our Trading Buy call with an unchanged dividend-based TP of RM8.64.

• Operating income was relatively unchanged sequentially at Rp4.80tln (+0.3% QoQ) in 3QFY24 as a drop in net interest income (-0.5%) was mitigated by gains in non-interest income (+2.4% QoQ), the latter supported by loan recoveries (+54.5% QoQ). Net interest income growth will be more measured going forward, reflected by the cut in NIM guidance, with management consciously shifts its capital towards lower-risk portfolios amid the prioritization of risk-adjusted profitability over growth.
• Net interest margin (NIM) fell (-15bps) to 4.07% on a sequential basis, weighed by a notably higher compression in asset yields (-13bps QoQ) as cost of funds also inched up (+3bps QoQ). 9MFY24 NIM was 36bps lower YoY to 4.16%, though we should expect to see improvements ahead, underscored by its quality loans growth (better asset yields) and robust CASA ratio of 66.7% (2QFY24: 65.2%).
• Loans growth momentum remains healthy with a +6.4% YoY expansion, underpinned by its targeted retail segments (45.8% of its total portfolio) - consumer (+5.4% YoY) and SME (+9.4% YoY). Within the consumer segment, auto loans (+18.2% YoY) and credit card/personal loans (+11.5% YoY) continue to provide the growth impetus, both collectively making up 14% of Niaga's total portfolio.
• Asset quality remains sound with gross non-performing loans ratio lower at 2.0% (2QFY24: 2.1%), below industry average. Loan loss provisions in 3QFY24 was close to management's expectation of a steady state ~Rp500bn per quarter which corresponds to a credit cost of ~1.0% (3QFY24: 0.99%). Loans at risk continues to trend lower, now at 9.6% (2QFY24: 10.2%) of the total portfolio. Impairment coverage ratio higher at 116.1% (2QFY24: 113.4%) with NPL coverage also higher at 260.1% (2QFY24: 253.1%).

Source: PublicInvest Research - 1 Nov 2024