Results

4QFY13 net profit of RM1,732.1m (-0.8% qoq; +18.6% yoy) took FY13 to RM6,552.4m (+14% yoy), in line or accounted for 104.5% and 104.2% of HLIB and consensus forecast, respectively.

Deviations

Largely in line except that it was circa 4% above HLIB and street mainly due to provision write-back in 4Q arising from IA write-back, partly offset by higher impairment.

Dividend

Final single-tier of 31 sen (4 sen cash and 27 sen DRP), taking total for FY13 to 53.5 sen (72% payout), slightly below our projection of 56 sen (75% payout).

Highlights

4QFY13 sequential net interest income growth was negated by lower non-interest income (largely due to high base as circa half of the gain in 3Q was due to translation as well as higher impairment) and provision write-back. While overheads continued to expand, it was well contained at 1.3% higher.

FY14 KPI - ROE 15%, loans and deposits growth 13%, NIM erosion 10bps, NII circa 35%, CIR 47-48% and credit charge 30-33bps, largely in line with our assumptions except we assumed slower loans and deposits growth of circa 10%.

Despite higher capital base, it is confident of achieving the KPIs given that the strategic priorities in FY13 and FY14 will enhance optimization of RWA and target of growing slightly above industry but without sacrificing margins.

Asset quality improved despite deterioration in BII. Despite uncertainties in Indonesia, we believe the group will weather the situation well given its prudent risk management and BII only circa 7% of group’s loans and profit.

Without DRP, group would need additional capital for growth. Thus we expect it to maintain high dividend payout (70%) with high proportion in DRP (70-80%) as long as DRP acceptance is around 80%.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and significant slowdown in capital market.

Forecasts

Largely unchanged as post results adjustment resulted in +0.3-1.7% to FY14-15.

Rating

BUY

Positives – Improving domestic operations and expanding regional footprint, new divisions to better address competition and customer centric and new IB outfit gaining traction. DRP provides downside protection while giving additional boost (from the discount pricing of DRP) to industry leading dividend yield.

Negatives – DRP will drag ROE, recent deterioration in Indonesia asset quality (but fortunately BII is only ~7% of profit).

Valuation

Target price maintained at RM11.98 based on Gordon Growth with ROE of 14.9% and WACC of 9.7%.

Source: Hong Leong Investment Bank Research - 28 Feb 2014