Results

2QFY13 net profit of RM159.3m (+5.6% qoq; +13.1% yoy) took 1HFY13 to RM310.1m (+1.1% yoy), in line or accounted for 51% of HLIB and 51.4% of consensus forecasts, respectively.

Deviations

Largely in line.

Dividends

None.

Highlights

2QFY13 results (similar to 1DFY13) were boosted by provision write-back (mainly due to large recovery), complemented by sustained net interest income growth (albeit at low single-digit) and sustained non-interest income. Meanwhile, overheads were kept in checked.

Loans growth continued to slow to 8.7% yoy (lowest since 2Q08). While it was conscious efforts to ensure decent growth without compromising asset quality, management indicated that given the pipeline, it is confident of slight accelerate to match industry average by year end. This is in line with HLIB’s 9% assumption for industry and Affin.

Management expects provision write-back in 1H (mainly due to recovery) to continue for FY13. While this is more positive than our assumption of 6bps charge, we are not changing our FY13 forecast given that our overheads assumption was too conservative vis-à-vis current run rate.

Thereafter, credit charge guidance is in the region of 5bps. In view of the macro headwinds, we prefer to be conservative with our 10bps assumption.

Asset quality continued to improve while capital ratios remained robust.

Has submitted proposal to Hwang-DBS for selective assets purchase and awaiting reply.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and intense competition from larger peers.

Forecasts

Unchanged.

Rating

SELL

Positives

• Improving asset quality, profitability and Tier-1 capital purely equity;
• Potential M&A excitement given that it is one of the two remaining smallest banks with assets size of circa RM50bn (less than half of the next largest bank, AMMB).

Negatives:

• Investors’ perception and its delinquency track record.
• One of the lowest NIM among peers, lowest ROE in industry, low deposit franchise (CASA only 21% of total) and one of the highest percentage of fixed rate loans.

Valuation

Target price maintained at RM3.81 based on Gordon Growth with ROE at 9.7 and WACC at 10.8%.

Source: Hong Leong Investment Bank Research - 20 Aug 2013