Results

4QFY13 net profit of RM1,038.3m (-2.2% qoq; -4% yoy) took FY13 to RM4,540.4m (+4.5% yoy), or 100.3% and 101.1% of HLIB and consensus forecast, respectively.

Deviation

Largely in line, despite the various one-offs (RM515m from sale of CIMB Aviva, RM217 restructuring cost and RM130m one-off profit from TuneInsurance.

Dividends

Second interim single-tier dividend of 11 sen, taking total for FY13 to 23.82 sen (40% payout), in line with KPI and our projection.

Highlights

Results skewed by various one-offs, otherwise, earnings slightly lower. In terms of positive underlying trends, there were continued loans growth, well contained normal cost run rate, strong growth in Singapore and Thailand, traction in Malaysia-Singapore consumer franchise and strong pick-up in regional corporate banking. However, these were offset by drag from Niaga, lower NIM (largely Niaga), higher provisions and tough treasury and markets.

FY14 KPIs - ROE 13.5-14%, dividend 40%, loans growth 14%, credit cost 35-40bps and CET1 >8.5%.

Dividend policy intact, but with CET1 of 9% (post placement) and target of 10% by 2016, group to reassess Dividend Reinvestment Scheme subject to earnings, forex, AFS reserves (now negative) and regulatory requirements.

Various initiatives (MSS, RBS acquisition, 1Platform new core banking system and private placement) has well positioned the group to grow its APAC IB franchise, lowered cost run rate and new regional revenue potentials which will be underpinned by strong capital position. This is positive for the longer-term growth trajectory of the group.

However, asset quality concerns and fluid situation in Indonesia are likely to continue bog short-term investors’ sentiment and price performance. Thailand protracted political turmoil could be another drag but contributions much lower at 6% vs. 30% by Niaga.

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

Post final results adjustments and management KPIs, FY14- 15 trimmed slightly by 0.5-0.8%.

Rating

HOLD 

Positives - Proxy to economic growth and capital markets as well as growing regional universal bank platform and the new core banking system (1Platform).

Negatives – Impact on non-interest income if capital markets soften and impact on asset quality from higher Indonesia interest rate.

Valuation

Target price cut to RM7.74 (Gordon Growth with ROE of 13.7% and WACC of 10.5%) from RM7.81 post earnings adjustments.

Source: Hong Leong Investment Bank Research - 26 Feb 2014