Results

3QFY14 net profit of RM423.1m (-4.1% qoq; +6.8% yoy) took 9MFY14 to RM1,329.6m (+9% yoy), largely in line with our and street expectations or accounted for 75% and 73.8% of HLIB and consensus forecasts, respectively.

Deviations

Largely in line.

Dividend

None.

Highlights

AMMB again delivered decent results driven by sustained net interest (despite behind industry loans growth while NIM improved qoq) and non-interest income, true to its strategy of profitable growth as well as lower overheads (mainly insurance’s commissions and claims) or widened JAW. However, these were partly offset by higher provision (mainly CA and lower recovery) and effective tax rate (mainly employee share scheme).

FY14 KPIs unchanged but likely to be in the lower ranges, in line with HLIB’s expectations. Reviewing FY15-16 KPIs in view of challenging environment, to reveal in 4Q briefing.

Hopeful that new lending rate framework will be on risk based pricing, which may help to sustain NIM, if not improve.

Trading book has been reduced, especially on the shorter end (less than 5 years). Thus, impact of yield curve shift will be largely neutral on P&L.

Asset quality deteriorated for second consecutive quarter. Saw some stress in the HP space (albeit half due to crossover of its new core banking system). However, these were adequately provided, especially when its CA of 2.2% is well above the new minimum requirement of 1.2%.

Merger integration and synergies on track. Although integration cost slightly delayed by implementation of the new core banking system, it will catch up in subsequent quarters. Insurance tie-up with MetLife pending regulatory approval, completion by FY14.

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. Recent mergers and life insurance partnership to enhance recurring non-interest income over longer term.

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

Valuation

Maintain Hold and target price of RM7.83 based on Gordon Growth (ROE of 14.6% andWACC of 11.3%).

Source: Hong Leong Investment Bank Research- 18 Feb 2014