Results

• 4QFY15 net profit of RM519.2m (+24.6% qoq; +12% yoy) took FY15 to RM1,918.6m (+7.6% yoy), above HLIB’s and street expectations or accounted for 110.8% and 110.2%, respectively.

Deviations

• While the profits from sale of 50% AmLife/AmTakaful (1Q) and AmFraser (4Q) were expected, the surprise came from provision write-back as well as write-back for doubtful sundry receivables.

Dividend

• Final single-tier dividend of 15.3 sen (vs. 15.3 sen) which took full year to 27.3 sen (3.8% yiel) or payout of 43%, in line with its policy of 40-50% but above our projection of 23 sen or 40% payout.

Highlights

• 4Q results were mainly boosted by the above mentioned write-backs and higher non-interest income. These were partly offset by paltry loans growth (+0.4% qoq; -1.6% yoy), plunge in NIM as well as lower yoy Islamic income and higher qoq overheads.

• The paltry loans performance was in line with its strategy of focused organic growth in profitable segments. However, it managed to register stronger deposits growth of 2.4%qoq and 2.7% yoy which contributed to the decline in LDR but at the expense of NIM.

• FY16 ROE KPI of 12-12.5% is lower than its previous midterm aspiration of 14% for FY16-17. Management attributed this to more challenging operating environment and hence the more conservative guidance.

• Unlike in previous years, the company did not provide any mid-term aspirations given that it is still in the midst of searching for a Group MD replacement to helm the group.

• Asset quality improved after uptick in 3Q (which was due to one lumpy but well collateralized property related loans). This is in line with earlier indication that the impaired loan is specific and not systemic.

Risks

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

Forecasts

• FY16 and FY17 cut by 6.7% and 8.8%, respectively, to reflect the lowered KPIs.

Rating

HOLD

Positives

• Value propositions from ANZ have improved asset 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 earnings sensitivity to capital markets and slow asset growth arising from portfolio rebalancing towards lower risk segments.

Valuation

• Maintain Hold but target price cut to RM6.21 (vs. RM6.72) based on Gordon Growth (ROE of 11.9% and WACC of 10.7%).

Source: Hong Leong Investment Bank Research - 25 May 2015