Comprehensive Analysis of Bank CIMB Niaga

Date: December 3, 2024

Broker: PT Maybank Sekuritas Indonesia

Introduction

In a detailed report crafted by PT Maybank Sekuritas Indonesia, the performance and future prospects of Bank CIMB Niaga (BNGA) have been meticulously analyzed. The report provides a thorough examination of the bank’s strategic direction, financial performance, and market positioning within Indonesia’s competitive banking sector. As Indonesia’s sixth-largest bank with a focus on consumer and SME lending, BNGA is positioned strategically to leverage its strengths amid the evolving economic landscape.

Investment Recommendation

The report maintains a “BUY” recommendation for Bank CIMB Niaga, with a target price (TP) set at IDR 2,400. This recommendation is based on a target 1.07x FY25E P/BV. The bank’s strategy of focusing on profitability and asset quality rather than aggressive lending growth is expected to yield long-term benefits. However, the report cautions about potential downside risks, particularly the deterioration in asset quality and the low free float of its shares.

Financial Performance Overview

As of 10M24, BNGA’s bank-only net profit reached IDR 5.4 trillion, marking a 5.6% year-over-year increase. This growth was primarily driven by a significant reduction in provision costs, which fell by 28% YoY, despite a contraction in net interest income by 3.4% YoY. The credit cost improved to 0.91% in 10M24, down from 1.19% in the previous year, indicating better credit quality. However, the net interest margin (NIM) slightly contracted to 4.42%, as the growth in interest expense outpaced that of interest income.

Conservative Lending Approach

BNGA exhibited a conservative approach to lending, with bank-only loan growth at 5.6% YoY, which is slower than the industry average of 10.9% YoY. The growth is expected to be propelled by small and medium enterprises (SMEs) and the consumer segment, aligning with the bank’s strategic focus. This cautious stance is anticipated to enhance the quality of lending and sustain low credit cost levels over the long term.

Rising Return on Equity and Dividend Yield

The report projects a gradual improvement in BNGA’s return on equity (ROE), driven by enhanced credit quality and sustainable earnings growth. Tier-1 ROE is expected to increase to 16% by FY26 from 13% in FY2022. With a stable earnings trajectory and a high capital adequacy ratio of 23.4% as of September 2024, the bank is poised to maintain a 50% dividend payout ratio, translating to a dividend yield of 6.9% for FY24E and 7.7% for FY25E.

Value Proposition

BNGA stands as the second-largest private bank in Indonesia by assets, boasting a diversified lending portfolio that includes consumer, corporate, and SME sectors. The bank has shown consistent improvement in loan quality post-pandemic, and its focus on consumer lending is expected to mitigate credit costs due to high collateral. The sustainable capital adequacy ratio ensures the potential for stable dividend payouts in the long term.

Financial Metrics and Growth Projections

The report forecasts a healthy trajectory for loan quality, with non-performing loans (NPLs) expected to decline to 1.80% in FY25 from 2.78% in FY22. The NIM is projected to gradually expand as the central bank reduces interest rates, easing funding cost pressures while maintaining asset yield resilience. The report anticipates ROE to reach 16.4% by FY26, underpinned by healthy asset quality and liquidity.

Swing Factors and Risks

Potential upsides include faster-than-expected loan growth, increased interest income, and higher earnings growth. Conversely, risks include unfavorable government interventions in the financial sector, abrupt declines in lending quality, and reduced margins due to slower-than-anticipated lending growth. The report underscores the importance of monitoring these dynamics to ensure strategic alignment with market conditions.

Key Financial Highlights

• Interest Income: IDR 1,940 billion in October 2024, a 9.0% YoY increase.
• Interest Expense: IDR 934 billion in October 2024, a 21.5% YoY increase.
• Net Interest Income: IDR 1,007 billion in October 2024, a slight 0.4% MoM decrease.
• Provision Costs: Reduced by 28.0% YoY in 10M24.
• Net Profit: IDR 5,418 billion in 10M24, a 5.6% YoY increase.

Conclusion

Bank CIMB Niaga’s strategic focus on quality loan growth and profitability while maintaining a conservative lending approach positions it well for sustainable future growth. With a robust capital adequacy ratio and attractive dividend yield, the bank offers compelling investment potential. The analysis by PT Maybank Sekuritas Indonesia provides a comprehensive view of BNGA’s financial health and strategic direction, making it a valuable resource for investors seeking insights into the Indonesian banking sector.