Results

• 3QFY15 net profit of RM416.6m (-7.3% qoq; +0.2% yoy) took 9MFY15 core (excluding RM208m profit from sale of life insurance arms to MetLife in 1QFY15 and RM80.3m merger related cost with bulk recorded in 1QFY15) to RM1,271.7m (-3.6% yoy), in line with HLIB’s expectations (73.4% of forecast) but slightly below consensus (71.2%).

Deviations

• Largely in line.

Dividend

• None, dividend normally announced during 2Q and 4Q. No change to dividend policy of 40-50%, payout quantum changed from 1/3 and 2/3 to 50% (of expected full year payout) for 1H and 2H, respectively.

Highlights

• 3Q results hit by continued subdued loans growth, NIM compression and lower non-interest income (particularly trading income and MTM). Overheads slightly higher qoq but sharp decline yoy. All these largely offset by provision write-back (mainly due to recovery).

• Only bright spots are sequential loans recovered to growth vs. two consecutive quarters of contraction while deposits growth was faster (especially CASA), resulting in lower LDR.

• Expect gain from sale of AmFraser (in 4Q) coupled with pick-up in 3Q loans growth as well as more stable and slight pick-up in 4Q underlying trends to accelerate 9MFY15 6% earnings growth to its FY15 KPI of 8% expansion.

• Portfolio rebalancing to continue (out of lower quality HP and commercial property loans) over next 12 months, thus, loans growth will continued to be subdued and track well below industry average.

• NIM continued under pressure but recent BNM relaxation on LCR could result in more sensible deposits competition. Coupled with lower industry loans growth and liquidity, also hopeful of better risk-based pricing, especially retail.

• Asset quality deteriorated due to one lumpy (well collateralized) property related loan (company specific and not systemic). Expect full recovery but likely post FY16. Excluding this, asset quality would have improved.

Risks

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

Forecasts

• Unchanged.

Rating

HOLD

Positives

• Value propositions from ANZ have improvedasset quality and risk management. Higher dividend guidance. Recent mergers and life insurance partnership to enhance long-term recurring non-interest income.

Negatives

• High LD ratio, relatively high earningssensitivity to capital markets and slow asset growth arising from portfolio rebalancing towards lower risk segments.

Valuation

• Maintain Hold and target price of RM6.72 based on Gordon Growth (ROE of 12.8% and WACC of 10.9%).

Source: Hong Leong Investment Bank Research - 13 Feb 2015