NISP BNGA Slightly Ahead 1Q09, but Valuation has Turned Expensive

Bank CIMB Niaga booked a net profit of Rp263bn in 1Q09, a decline of 18.8% YoY from Rp324bn booked in 1Q08 mainly due to higher provision charges (+102% YoY to Rp327bn) and Rp115bn merger cost.

PPOP rose by 39.2% YoY to Rp778bn as amid the 23.6% YoY rise in net interest income to Rp1.37tn due to 15%

YoY loan growth to Rp72.9tn as well as higher earnings asset yields. On a quarterly basis, net profit improved significantly from a net loss of Rp288bn in 4Q08 due to lower provisioning (-57.1% QoQ), lower opex (-7.5% QoQ) and less merger cost (Rp115bn vs. Rp315bn). Loan growth was at -1.2% QoQ as the bank deliberately held back in anticipation of deteriorating economic condition.

NIM expanded to 5.9% in 1Q09 from 5.4% in 2008 amid faster deposit downward re-pricing and improvement in funding mix.

As expected and happened in other banks, NPL also deteriorated to 2.9% from 2.5% in Dec’08, mainly from business segment in trading sector.

Overall, the results were slightly ahead of our estimate at 26.4% of our full year forecast of Rp997bn as our assumption on funding cost was more conservative in light of liquidity imbalance in the banking sector.

Going forward, the bank will continue its integration process with a single platform completion by 3Q09. It will continue to leverage on the best of Bank Niaga and Bank Lippo as well as its parent, CIMB Group. The bank is to remain cautious in 2009F, with loan focusing on resource based industry, trade finance, and mortgage.

The slightly ahead 1Q09 results were not something to be excited for. The merger has made the bank bigger but not yet better as it will still take time to complete the single platform and address their differences. On the positive side, the bank will benefit from the decline in interest rate as 56% of its funding was high cost time deposit.

We are currently reviewing our recommendation on the counter as we believe that the stock price has run ahead of its fundamental given the recent 50% rise in the stock price during the past one month. Thus, we are likely to downgrade our recommendation to Sell from Hold previously. At current price, the bank is trading at 2009F P/BV of
1.7x and PER of 17.4x, which are relatively expensive for low teen’s ROE.