Results

2QFY13 net profit of RM1,023.5m (+5.7% qoq; +8.6% yoy) took 1HFY13 to RM1,991.8m (+6.4% yoy), in line or accounted for 47.1% and 47.8% of HLIB and consensus full year forecast, respectively.

Deviations

Largely in line given the expected sequential growth from the seasonally low and general election affected 1Q.

Dividends

First interim single tier dividend of 22 sen (vs. 20 sen), within expectation. Ex and payment dates are 6 and 20 Aug respectively.

Highlights

Loans growth of 11.8% yoy (domestic 12.4%), in line with guidance of 11-12% (12-13%). No apparent impact pre and post general election while the recent BNM measures have little impact. Unsecured personal loans only 1% of total while bulk of mortgage applications are first timer.

No changes to FY13 KPIs (see next page for details). 1HFY13 results suggest on track to meeting the targets.

Maintain guidance of 10-12bps NIM erosion in FY13 but expects the magnitude of decline in subsequent years to be lesser as rundown of older loans (with higher margin) is near tail-end.

No changes in guidance on capital management. Current dividend payout is comfortable to support double-digit loans growth. Capital requirement depends on BNM’s timeline and quantum of counter cyclical buffer, any potential cash call likely to be less than 10% of market capitalization.

Banca tie-up with AIA already finalized, new products well received, should see more impact from 2H onwards.

Asset quality – ratio was flattish, helped by growing loans book despite higher absolute impaired loans (IL-for the second consecutive quarter). Net impaired loans formation accelerated resulting in higher absolute amount. While this could be due to the general election impact, close monitoring is needed as this bellwether could provide tell tail signs of warning for the industry.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and higher than expected erosion in NIM.

Forecasts

Unchanged for now.

Rating

HOLD

Positives:

• Above industry asset quality and ROE;
• Excellent track record in delivering guidance and consistency in growth.

Negatives:

• Dividend payout lower than previous years and uncertainty about quantum of counter cyclical buffer.

Valuation

Target price maintained at RM16.74 based on Gordon Growth (ROE of 21.8% and WACC of 9.6%).

Source: Hong Leong Investment Bank Research - 24 Jul 2013