Results

4QFY13 core net profit (excluding RM23.2m profit from sale of associate – AIA AFG Takaful) of RM115.6m (-12.9% qoq; -5.6% yoy) took FY13 to RM514.9m (+2.4% yoy) or accounted for 97.6% and 98.4% of HLIB and consensus forecasts respectively or in line with both.

Deviations

Largely in line.

Dividend

None. Already paid (on 28 Aug 12 and 28 Feb 13) two interim single-tier dividends totaled 16.6 sen (vs. 13.3 sen) or a payout of 46.9% vs. 42.3% or in line with its 50% policy.

Highlights

Loans growth continued to be strong at double-digit yoy, as guided by management (driven by purchase of securities, HP, mortgages, non-residential loans and SME), and ahead of industry average for four consecutive quarters.

4Q core earnings supported by continued loans growth, sustained NIM and higher non-interest income. However, they were more than offset by reversal in loan loss provision (after three consecutive quarters of write-backs).

Despite deposits contraction in 3Q, it recovered strongly at 14.9% qoq and 11.9% yoy growth (ahead of industry average), mainly due to timing of money market deposits. CASA expansion remained strong at 0.8% qoq and 11.6% yoy. This took CASA to 33.6% of total (among highest visà- vis peers) despite its small asset size and franchise.

Asset quality ratio continued to improve despite increase in absolute amount while capital ratios also remained strong (among the highest vs. peers as well as purely equity). CET1 was 11.2%, one of the highest.

Risks

• Unexpected jump in impaired loans and lower than expected loan growth.

Forecasts

• FY14-15 earnings forecasts cut by 7-9% post FY13 final results.

Rating

HOLD

• Positives – strong asset quality and deposit franchise, new management and new strategy showing results, potential write-back from CLO provisions, potential M&A excitement and ample room for more active capital management.
• Negatives – Stiff competition from significantly larger players with bigger scale and reach and loans growth among the slowest (but has since caught up with industry over the last three quarters).

Valuation

• Target price revised lower to RM4.91 vs. RM4.94 based on Gordon Growth with ROE of 13.4% and WACC of 10.1%. Given total potential return of less than 10%, we downgrade our rating on the stock to HOLD.

Source: Hong Leong Investment Bank Research - 22 May 2013