Results

2QFY14 net profit of RM441.2m (-5.7% qoq; +16% yoy) took 1HFY14 to RM909.1m (+10.4% yoy) or accounted for 51.1% and 49.9% of HLIB and consensus forecasts, respectively. We consider this in line given that despite the RM40m provision for AmFraser, the huge recoveries in 1HFY14 (mainly from business and corporate segment) are one-offs and not expected to repeat in 2H.

Deviations

Largely in line.

Dividend 

Interim single-tier dividend of 7.2 sen (vs. 7 sen) with ex and payment on 27 Nov and 12 Dec, respectively.

Highlights

AMMB again delivered decent results driven by continued strong recoveries (albeit lower qoq) as well as most divisions except for markets. However, these were partly offset by lower NIM (while loans growth slowed due to large repayments), sustained overheads (due to inclusion of Kurnia and the need to continue investment for expansion).

Most FY14 headline KPIs were unchanged except secondary KPIs - loans growth (now 7% rather than 10%) and slightly higher CIR but offset by lower loans loss charge of less than 20bps (vs. less than 30bps previously).

AmFraser total exposure to the three Singapore stocks that suffered price collapse was RM120m (80% settlement and 20% margin). It has made preemptive provision of RM40m in 2QFY14 and has already recovered RM15m. The remaining amount (RM65m) is in the process of recovering. Management highlighted that despite adhering to various limits, unlike its Malaysia operations, AmFraser is a small players who lacks channel checks for preemptive measures.

Asset quality deteriorated (both absolute amount and ratio) due to one corporate account, seasonal impact from Hari Raya on retail, part of AmFraser exposure (mainly margin i.e. 20% of total) and sequential contraction in loans. Management assured asset quality remained intact.

Merger integration and synergies on track as guided. Insurance partner by end 2013 to help address any regulatory and market place changes.

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 - 15 Nov 2013