Results

1QFY14 net profit of RM1,016.9m (-0.8% qoq; 5% yoy) only accounted for 23.3% and 22.9% of HLIB and consensus full year forecast, respectively.

Deviations

Due to seasonally weak quarter while the sustained loans growth will only filter through in later quarters.

Dividends

None, declaration normally during 2Q results.

Highlights

Loans growth of 11.3% yoy (domestic 11.5%) and deposits growth of 11.5% largely in line with guidance of 10-11%. Although BNM has thus far only published industry loans and deposits growth for Feb (10.7% and 7% yoy, respectively) while the numbers for Mar will only be available in end Apr, the above numbers do suggest that the group continue to outpace the industry in terms of loans and deposits growth.

However, due to the seasonally weak 1Q, ROE is at the lower end of its KPI of more than 20%.

1Q results were underpinned by continued loans and noninterest income growth as well as lower provisions but offset by lower NIM and higher overheads (albeit CIR was below its KPI of less than 32%).

Asset quality remained intact given that despite slight increase in absolute Impaired Loans (IL) amount, the ratio improved by 1bp. As for its HP IL, it has finally stabilized, after rising for five consecutive quarters since 4Q12.

On the new BNM regulatory reserves requirement to maintain minimum of 1.2% CA, it said that there will be no impact on earnings as the shortfall will be transferred from retained earnings. However, as this reserve will be treated as Tier-2 capital and does not qualify as CET1, its CET1 and Tier-2 capital will be reduced and increased by 0.6%- point, respectively.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and higher than expected erosion in NIM.

Forecasts

Unchanged for now given the sustained loans growth will only filter through in later quarters.

Rating

HOLD

Positives:

• Above industry asset quality and ROE;
• Excellent track record in delivering guidance and consistency in growth.

Negatives:

• Dividend payout ratio lower than previous years and uncertainty about quantum of counter cyclical buffer.

Valuation

We maintain our target price at RM19.08 based on Gordon Growth (ROE of 20% and WACC of 8.8%). Although total potential return is still within our 10% limit, share price has exceeded our TP. Thus, we prefer Maybank and RHB Cap for exposure to the sector.

Source:Hong Leong Investment Bank Research - 22 Apr 2014