Results

3QFY13 net profit of RM1,061.7m (+0.7% qoq; -7.1% yoy) took 9MFY13 to RM3,502.1m (+7.3% yoy), or accounted for 77.4% and 76.3% of HLIB and consensus forecast, respectively. However, we considered this to be inline given following EIs - RM515.1m profit from sale of 51% stake in CIMB Aviva and RM200m restructuring charges in 1Q as well as circa RM130m one-off profit from Tune Insurance in 3Q and another RM62 provision for MSS in 4Q. Continued weakness in Rupiah will also be a drag on Niaga’s contributions in RM.

Deviation

Largely in line.

Dividends

None.

Highlights

Overall results mixed with sustained growth in Malaysia- Singapore consumer banking (MSCB) and regional corporate banking (RCB) as well as pick-up in Treasury & Markets (albeit still lower yoy) while IB had a weak quarter. 3Q results underpinend by continued loans growth (13.7% yoy) and CASA growth (14.4% yoy) as well as more stable NIM but offset by jump in provision (Malaysia due to festive season while Niaga due to asset quality uptick and US$ loans). It was also boosted by one-off profits from Tune Insurance.

Expect better 4Q as IB pipeline is strong which will complement continued expansion in MSCB and RCB. However, Niaga’s contribution will be muted (as situation there still fluid while competition for deposits intensified) while Treasury & Markets still facing volatile markets.

Asset quality improved on group basis but Niaga saw an uptick due to some SMEs. Post festive season, the slight uptick in Malaysia delinquencies is expected to revert and normalize. Niaga may see further uptick but reserves build up over the last few years should help to mitigate. Moreover, it has been proactive in its risk management. Overall, management has not seen alarming stress points in the group.

RBS to breakeven in FY14 and expect brokerage income to pick up after delays in several countries.

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% and WACC of 10.9%).

Source: Hong Leong Investment Bank Research- 19 Nov 2013