Results

1QFY13 net profit of RM1,506.2m (+3.2% qoq; +11.8% yoy) was in line with HLIB’s and consensus expectations or accounted for 24% and 24.2%, respectively.

Deviations

Largely in line.

Highlights

1QFY13 earnings driven by continued loans growth (albeit slower in some segments and impacted by 13th GE uncertainties), qoq improvement in NIM, sustained JAWS and non-interest income growth as well as lower provisions. International contribution increased to 31% of total PBT visà- vis 27% in 1QFY12.

Despite the double-digit yoy earnings growth and loans growth, the results were behind its ROE and loans growth (annualized basis) KPIs for FY13. However, management is confident of catching up in view of the seasonally slower 1Q and uncertainties about the 13th GE.

New CEO likely internal candidate while outgoing CEO assured that the institution has sound management team to execute group’s strategy and move forward. His departure is unlikely to significantly derail the group’s growth trajectory.

Asset quality deteriorated in Malaysia (mainly manufacturing) but management assured that it is not systemic but circumstantial as there was no linkage among the cases while most have specific special situations. Nevertheless, the group will be closely monitoring the situation. On another note, due to its conservative stance, the deterioration has not resulted in significant jump in provisions.

Both transitional and full Basel III CET1 of 10.1% and circa 9% remained robust. Management reiterated that as long as the group is growing at circa 12% and to maintain ROE of circa 15%, high dividend payout ratio with high proportion of DRP will continue.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and significant slowdown in capital market.

Forecasts

Unchanged.

Rating

BUY

• Positives – Earnings growth from Indonesia, improving domestic operations and expanding regional footprint, new divisions to better address competition and customer centric and new IB outfit gaining traction. DRP provides downside protection while giving additional boost (from the discount pricing of DRP) to industry leading dividend yield.
• Negatives – DRP will drag ROE and the recent deterioration in asset quality.

Valuation

• Target price maintained at RM11.36 based on Gordon Growth with ROE of 15.0% and WACC of 9.7%.

Source: Hong Leong Investment Bank Research - 27 May 2013