CIMB Niaga records another weak quarter in 2Q15

0

KUCHING: CIMB Group Holdings Bhd’s shares fell six sen to RM5.32 at closing yesterday with 4.29 million shares changing hands.

Affin Hwang Capital has maintained a “hold” call on the stock with a target price of RM5.90.

CIMB Group’s subsidiary PT Bank CIMB Niaga Tbk (CIMB Niaga) has recorded another weak quarter in the second quarter of 2015 (2Q15), although it was within some analysts’ expectations.

In a statement on Bursa Malaysia, CIMB Niaga reported an unaudited consolidated operating income of 6.726 trillion rupiah, representing a 1.5 per cent year-on-year (y-o-y) growth, with a corresponding net profit of 176 billion rupiah for the six months ended June 30, 2015, translating to an earnings per share (EPS) of 7.02 rupiah.

According to RHB Research Institute Sdn Bhd (RHB Research), Niaga’s 2Q15 net profit remained weak as loan provisioning stayed elevated (albeit lower sequentially), while subdued economic conditions and market activities hampered topline growth.

RHB Research said that 2Q15 credit cost (annualised) was 289 basis points (bps) (1Q15: 329bps; 2Q14: 91bps) and Niaga maintained the group’s guidance of lower loan provisions in the second half of 2015 (2H15), versus 1H15.

That said, the research house noted that asset quality deteriorated further in 2Q15 and this may mean that the improvement in 2H15 credit cost may not be too meaningful.

It further noted that 2Q15 absolute gross non-performing loans (NPLs) rose eight per cent quarter on quarter (q-o-q) (up 59 per cent y-o-y) while the gross NPL ratio ticked up to 4.3 per cent from 4.1 per cent at end-1Q15 (2Q14: three per cent).

RHB Research said that more importantly, special mentioned loans were up six per cent q-o-q while Niaga’s gross impaired loan (reflects NPLs and some special mentioned loans that may potentially turn into NPLs) ratio rose to 5.7 per cent from 5.3 per cent in 1Q15 (2Q14: 3.9 per cent).

“Although part of the rise could be seasonal due to festivities, investors will need to keep a watch on this,” it said.

Meanwhile, the research arm of Affin Hwang Investment Investment Bank Bhd (AffinHwang Research) expected a steadier outlook for CIMB Niaga in 2H15, as provision should ease given that loan loss cover (LLC) is at 99.6 per cent, while the LLC for the coal sector related portfolio is 70 per cent provided (2Q15: 60 per cent).

On the other hand, AffinHwang Research said that the mutual separation scheme (MSS) cost of 500 billion rupiah will be recognized in 3Q15 but is expected to translate into annual savings of 400 billion rupiah.

The research arm expected low-teens loan growth rate in 2015, driven by the consumer banking divisions and selective focus on high quality commercial/corporate customers as management focuses on improving credit standards.

All in, AffinHwang Research reiterated its ‘hold’ rating on CIMB Group, at a price target of RM5.90 per share, based on an implied price-to-book value (P/BV) target of one-fold.

The research arm did not foresee strong re-rating catalyst for CIMB Group in 2H15, but it did note that earnings outlook in 2016 will potentially rebound in the absence of elevated provisions while rationalization at the investment banking (IB) division and staff MSS will result in annual savings of RM500 million per annum.