Results

• 4QFY14 net profit of RM1,931.2m (+20.1% qoq; +11.5% yoy) took FY14 to RM6,716.5m (+2.5% yoy) or accounted for 103.3% of HLIB and 103.9% of consensus forecasts, in line with HLIB and consensus.

Deviations

• Largely in line.

Dividend

• Final single-tier of 33 sen, of which 10 sen is cash and another 23 sen under DRP. Total for the year was 57 sen (78.5% payout, higher than its official policy of 40-60%), ahead of our 51 sen projection.

Highlights

• Strong 4Q boosted by continued loans growth (+5.8% qoq and +13.3% yoy), higher non-interest income (mainly fee income and insurance), provision write-back (lower provision and sustained recovery) and low effective tax rate (17.3% albeit FY14’s 24.2% was close to statutory rate). Partly offset by lower NIM and significantly higher overheads.

• FY14 results commendable and achieved its KPIs.

• FY15 KPIs of 13-14% ROE, loans and deposits growth of 9- 10%, credit cost of 30bps, CIR of 47-48% and NIM erosion of 8-10bps.

• Management confident of achieving its KPIs given that it has successfully executed strategic plan for FY14. Although the strategic plan was altered (with lower KPIs) from the original version amid drastic deterioration in operating environment, the commendable FY14 results reflects that management flexibility to adapt but still able to weather the storm. It is also confident of higher percentage of non-interest income vis-à-vis FY14 (which was washout year).

• Comfortable with capital ratios (even if the need to locally incorporate its Singapore operations). However, with uncertainty about counter cyclical buffer and cash call reluctant, DRP will continue as a refine and efficient way of capital management. This implies room to maintain high dividend payout (with high percentage under DRP) and thus maintaining its above industry yield.

Risks

• Unexpected jump in impaired loans, lower than expected loan growth and significant slowdown in capital market.

Forecasts

• FY15-16 fine-tuned but largely unchanged.

Rating

BUY

Positives

• Improving domestic operations and expandingregional footprint, new divisions to better address competition and customer centric and new IB outfit gaining traction. DRP provides downside protection while giving additional boost (from the discount pricing of DRP) to industry leading dividend yield.

Negatives

• DRP will drag ROE, recent deterioration inIndonesia asset quality (but BII is only ~7% of profit).

Valuation

• Target price fine-tuned to RM11.30 (vs. RM11.29) based on Gordon Growth with ROE of 13.2% and WACC of 9.3%.

Source: Hong Leong Investment Bank Research - 27 Feb 2015