Results

• 2QFY15 core net profit (excluding RM21.6m profit from sale of land) of RM 158.7m (+21.3% qoq; +20.9% yoy) took 1HFY15 to RM289.5m (+9.7% yoy from 1HFY14 excluding RM30m sign- on fee from Manulife and one-off VSS of RM24.8m) or accounted for 48.8% and 49% of HLIB and consensus forecasts, respectively.

Deviations

• Largely in line.

Dividend

• First interim dividend of 9 sen (vs. 7.5 sen previously) with ex and payment dates on 11 and 30 Dec, respectively .

Highlights

Strong 2QFY15 res ults underpinned by acceleration in loans growth (ahead of industry), higher NIM (benefited from OPR hike), higher non -interest income (even after excluding the profit from sale of land) and sequential decline in overheads (or widening JAW). It was also boosted by provision write back on the back of strong recovery but guided that this is not expected to repeat in 2H.

Deposit growth of 11% yoy also ahead of industry’s 5.9%. More impressive was the 16.7% yoy growth in CASA (vs. 5%), taking its CASA to 35. 2% of total, one of the highest among peers. The reasons for were securing new government and corporate accounts as well as its strong niche franchise in the consumer and SME space. Thus, despite the recently heightened competition for deposits, the group is confident of holding its market share and keeping its LDR at 85% or below, albeit at rising cost of fund.

General guidance: 1) NIM continue under competitive pressure (expect 10bps lower in FY15); and 2) Long-term ROE target of ROE may need review given change in competitive environment and economic outlook.

Asset quality – impaired loans ratio continued to improve . Moreover, despite strong double-digit loans growth, absolute impaired loans also declined qoq.

It has submitted the CEO candidate nam e to BNM and is awaiting approval from the central bank before announcing.

Risks

• Unex pected jump in impaired loans and lower than expected loan growth. Intense competition from much bigger players.

Forecasts

• Unchanged.

Rating

BUY

Positives

• Strong asset quality and deposit franchise (the latter helps in protecting NIM), strong niche in consumer and SME, potential M&A excitement and ample room for more active capital management given its robust capital. Transformation has resulted in strong loans growth.

Negatives

• Stiff competition from significantly larger players with bigger scale and reach as well as relatively lower liquidity against peers .

Valuation

• Target price maintained at RM 5.25 based on Gordon Growth with ROE of 14.2% and WACC of 10.3%.

Source: Hong Leong Investment Bank Research - 27 Nov 2014