Maybank IB believes Bank CIMB Niaga remains focused on improving profitability and asset quality, instead of chasing lending growth. This is likely to result in short-term pressure on NIM, but Maybank this should translate into sustainably low credit cost.

The house maintains a buy call with a target price of IDR2,400. Downside risks to call include: 1) deterioration in asset quality; and 2) low free float of its shares.

Modest earnings growth
10M24 bank-only net profit of IDR5.4t (+5.6% YoY) was driven by lower provision costs (-28% YoY) despite net interest income contracting (-3.4% YoY). Thus, credit costs was at 0.91% in 10M24 (vs 1.19% in 10M23), as credit quality improves. However, the house noted that NIM slightly contracted to 4.42% (-5bps YoY) in 10M24, as interest expense growth (+21.7% YoY) outweighed interest income growth (+6.7% YoY).'

Conservative lending
10M24 bank-only loans grew conservatively by 5.6% YoY, much slower than industry growth of 10.9% YoY. Maybank IB expects growth to be driven by small and medium enterprises (SME) and the consumer segment. BNGA's conservative approach should translate to stronger quality lending, which would sustain its low credit cost level in the long term.

Rising ROE with high dividend yield
Maybank IB believes with better quality credit, earnings growth should be sustainable, leading to gradual improvement in ROE. The house expects tier-1 ROE to expand to 16% by FY26 from 13% in FY2022. With stable earnings growth, along with a high capital-adequacy ratio of 23.4% in Sep'24, the 50% dividend payout ratio should be sustainable. This translates into a dividend
yield of 6.9%/7.7% for FY24E/25E at the current share price.