Results

2QFY13 net profit of RM1,054.3m (-23.9% qoq; -5% yoy) took 1HFY13 to RM2,440.4m (+15.1% yoy), or accounted for 53.9% and 52.3% of HLIB and consensus forecast, respectively. However, excluding the EIs (RM515.1m profit from sale of 51% stake in CIMB Aviva and RM200m restructuring charges), 1HFY13 accounted for 47% and 45.5% of HLIB (in line) and consensus (below).

Deviation

Largely in line.

Dividends

First interim single-tier of 12.82 sen (vs. 5 sen) or 40% of its reported earnings, in line with KPI.

Highlights

Excluding the EI in 1Q, 2Q cearnings were flat sequentially. 1H core earnings growth from consumer and corporate banking was partly dragged by lower contributions from IB and treasury. Malaysia maintained its stable expansion supplemented by strong growth from Singapore and Thailand while Indonesia had a tough operating environment but still managed to record slightly higher contribution.

1H ROE above KPI but below if excludes EIs. Management not changing the 16% KPI given good momentum from regional corporate banking, Malaysia-Singapore consumer banking, CIMB Singapore and Thai. However, it will be challenging given the impact of macroeconomic condition on treasury markets, asset quality of Niaga and IB pipeline. We are keeping our 15.2% forecast.

Asset quality improved while capital ratio remained robust.

Main concern during briefing was asset quality in Indonesia. Management highlighted that there is no stress but in view of the macroeconomic condition, is prepared for the worst with robust and more stringent risk management as well as more conservative approach. Moreover, Niaga’s Days Past Due has improved. Credit charge is low in 1H but unlikely to hit maximum 40bps guidance.

Other salient points: 1) 2H NIM expected to be on par with 1H; 2) ample group liquidity position to capitalize on higher yield; 3) Thailand - not looking for M&A and no urgency to list given current sentiment. Listing will be undertaken at minimum impact to existing shareholders.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and impact on non-interest income if there is a slowdown in capital markets.

Forecasts

Unchanged.

Rating

HOLD

Positives - Proxy to economic growth and capital markets as well as growing regional universal bank platform.

Negatives - Non-interest income may fall short if capital markets soften and impact from higher Indonesia interest rate.

Valuation

Target price maintained at RM8.06 (Gordon Growth with ROE of 15.1% andWACC of 10.9%).

Source: Hong Leong Investment Bank Research - 27 Aug 2013