Results

1QFY13 core net profit (excluding RM515.1m perofit from sale of 51% stake in CIMB Aviva and RM200m of restructuring charges) of RM1,053.1m (-2.6% qoq; +4.2% yoy) was below HLIB’s and consensus expectations or accounted for 22.4% and 22.3%, respectively.

Deviation

Seasonally slower quarter and impact of full RBS cost. Given that revenue from RBS will only flow through in subsequent quarters as well as post seasonal and 13th GE effects, we are not changing our forecasts for now.

Dividends

None.

Highlights

Overall earnings growth supported by sustained consumer banking as well as strong IB and corporate banking. This was partly offset by slower Treasury and Markets. In terms of county contributions, all four main markets (Malaysia, Indonesia, Thailand and Singapore) contributed to the expansion albeit Indonesia affected by forex translation, lower loans growth and plunge in NIM.

1QFY13 ROE of circa 14.4% (ex one-offs) missed FY13 KPI of 16%. Nevertheless, it is still confident of meeting the target given additional revenue from RBS in subsequent quarters, good deal pipeline, continued strong loans growth (especially corporate, except for Indonesia) and improve contribution from CIMB Niaga.

Other KPIs (loans growth, capital, credit charge and leverage ratio) are all on track to meet targets.

Consequently, core CIR of 59% in 1QFY13 is expected to trend towards 55-56%.

Looking at RWA optimization (non-core assets sale and mortgage book) to further improve its Group’s transitional CET1 of 8.2%. As previously guided, DRP expected to continue until CET1 hit target of 9.5% by 2015.

Asset quality ratio improved although absolute amount increased (in Indonesia and Thailand or cards, construction, fixed assets and transport). We believe the latter is temporary due to seasonality.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and impact on non-interest income if there is a slowdown in capital markets.

Forecasts

Unchanged.

Rating

HOLD

• Positives - Proxy to economic growth and capital markets, robust prospects of Indonesia banking industry and growing regional universal bank platform.
• Negatives - Non-interest income may fall short if capital markets soften.

Valuation

• Target price maintained at RM8.42 (Gordon Growth with ROE of 15.7% andWACC of 10.9%).

Source: Hong Leong Investment Bank Research - 22 May 2013