Results

• 4QFY14 net profit of RM1,254m (5.2% qoq; 22.3% yoy) took FY14 to RM4,518.8m (11.2% yoy), in line with HLIB’s and consensus or accounted for 104% and 103.1% of ours and consensus forecasts, respectively.

Deviations

• Largely in line.

Dividends

• Second interim of 31 sen, taking total for FY14 to 54 sen (46.1% payout), in line with our 52 sen projection. Ex and payment dates are 18 Feb and 5 Mar, respectively.

Highlights

• Loans and deposits growth, capital ratios, CIR, asset quality and ROE are all in line with its FY14 KPIs.

• 4Q14 earnings were sustained by continued above-industry loans growth, non-interest income growth (underpinned by Public Mutual), contained overheads and lower yoy provisions (albeit higher qoq). Partly offset by lower NIM, pressure from portfolio rebalancing (rising percentage of lower margin mortgage loans) and intense competition for deposits (resulted in higher cost of fund).

• After four consecutive quarters of rising absolute impaired loans (albeit still improved ratio), the amount finally decline with ratio improved further to all-time low level.

• Despite challenging 2015 operating environment, there are still bright spots which the company expects to sustain its earnings growth momentum.

• For 2015, it is still targeting above industry loans growth of 9-10% (same for deposit to maintain LDR) although this will be partly offset by lower NIM (portfolio rebalancing and higher cost of fund from intense competition for deposits). This will be complemented by stable asset quality and lower credit cost as well as contained overheads.

• ROE targeted at more than 16%, post right issue.

• Dividend payout ratio to remain stable around 45-46%.

Risks

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

Forecasts

• Largely unchanged post final results fine-tuning.

Rating

HOLD

Positives

• Above industry asset quality and stronger capital position post rights issue;
• Excellent track record in delivering guidance and consistency in growth.

Negatives

• Uncertainty about quantum of counter cyclical buffer.
• ROE dilution from rights issue.

Valuation

• Target price raised to RM18.56 (from RM18.32) based on Gordon Growth with ROE of 16.4% and WACC of 8.1%.

Source: Hong Leong Investment Bank Research - 6 Feb 2015