Results

4QFY14 net profit of RM463.7m (+9.6% qoq; +14.5% yoy) took FY14 to RM1,782.4m (+10% yoy), largely in line with our and street expectations or accounted for 100.5% and 99.1% of HLIB and consensus forecasts, respectively.

Deviations

Largely in line.

Dividend

Final single-tier dividend of 16.9 sen, taking total for FY14 to 24.1 sen or circa 40% payout ratio, in line with its KPI and HLIB projection.

Highlights

Strong 4Q sequential results driven by loans growth, NIM improvement and low tax rate but partly offset by lower noninterest income, higher provision and higher overheads. Asset quality improved qoq while capital remains robust. Since CET1 exceeded its FY14 KPI of 8.5%, it is aiming for higher KPI in FY15 of 9%.

Overall KPIs for FY15-17 looking at PATMI growth of 9-11% with strategic priorities of deliver on focused organic growth, leverage strategic partnership and deliver on acquisitions, continue to optimize efficiency and build sustainability.

FY15 KPIs of 14.2-14.5% ROE inclusive of profit from sale of ~50% in life and Takaful business to MetLife. However, contrary to our earlier estimate of RM550m, the profit will be much less given costs related to the tie-up.

Moreover, large part of the profit will be offset by expected NIM erosion (~15bps guidance), normalization of credit charge (~30bps guidance), restructuring cost (MSS in 1QFY15), IRB approach cost as well as GST and compliance cost.

Merger integration and synergies with Kurnia and MBF on track for full year benefit. However, will incur more costs for integration with MetLife as well as positioning the new tie-up for future growth. Expect grace period of 12-18 months before synergies with MetLife materializes.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and impact from lower capital markets activities.

Forecasts

FY15 and FY16 cut by 0.5% and 3.3%, respectively, post factoring management guidance.

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 with lower target price of RM7.77 (vs. RM7.83) based on Gordon Growth (ROE of 14.3% and WACC of 11.2%).

Source: Hong Leong Investment Bank Research - 21 May 2014