Results

1QFY14 net profit of RM467.9m (+15.1% qoq; +5.6% yoy) was 26.4% and 25.6% of HLIB and consensus forecasts, respectively. We consider this in line given that the huge recovery in 1QFY14 (mainly one-offs), which resulted in total provision write-back, is unlikely to sustain. Moreover, it is not changing credit charge guidance of less than 30bps.

Deviations

Largely in line.

Dividend

None.

Highlights

AMMB again delivered a good set of results and its promise of profitable growth. This was underpinned by continued net interest income growth, non-interest income (boosted by inclusion of Kurnia and organic growth as well as turnaround of life insurance but partly drag by MTM loss) and provision write-back (large recoveries which is not sustainable) but partly offset by higher expenses (in part also due to inclusion of Kurnia and MBF Cards).

Has rebalanced loan book (from majority fixed rates to floating) that should benefit from any hike in interest rate. Meanwhile, CASA growth continued to outpace overall deposit expansion and is now 20.6% of total (all-time-high).

FY14-15 KPIs unchanged from guidance during FY13 final results briefing.

Merger synergistic guidance also largely unchanged and on track to reap the benefits.

Trading book main drag on earnings due to shift in yield curve. Given the current environment, contributions likely to remain lackluster.

Asset quality continued to improve.

Capital ratios remain comfortable under Basel III.

The search for partner in life and family Takaful business is entering into the second phase but will take another quarter to finalize the candidate and another few more months to complete.

Negotiation to acquire Hwang-DBS still ongoing.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and impact from lower capital markets activities.

Forecasts

Unchanged.

Rating

HOLD

Positives – Value propositions from ANZ have improved asset quality, risk management and competitiveness. Improving ROE and higher dividend guidance as well as focus on profitable growth are bearing fruits.

Negatives – High LD ratio and relatively high earnings sensitivity to capital markets.

Valuation

Maintain Hold and target price of RM7.32 based on Gordon Growth (ROE of 14.3% and WACC of 11%).

Source: Hong Leong Investment Bank Research - 19 Aug 2013