Results

• 4QFY15 core net profit of RM93.3m (-26.2% qoq; -41% yoy) took FY15 to RM530.8m (-5.8% yoy) or 89.5% and 92.4% of HLIB and consensus forecasts, respectively.

Deviations

• Due to one-off RM18.4m adjustment to net interest income as income from balance transfer for credit cards adjusted from upfront to amortization as well as significant MTM loss of RM72.5m, both in 4Q.

Dividend

• Second interim dividend of 6.4 sen taking total for FY15 to 15.4 sen (vs. 29.5 sen of which 10.5 sen was special dividend) or payout of 45%, lower than its previous 60% policy. Forward guidance is for payout to be around 45%.

Highlights

• 4QFY15 earnings lowest since 4QFY11 mainly due to the above mentioned adjustment and MTM as well as higher provision (second highest since 4QFY11). Excluding the adjustment, NIM was still lower qoq but above the 2% mark while net interest income would have recorded -3.3% qoq and +3.6% yoy. This was due to continued strong and above industry loans growth of 3.6% qoq and 14.7% yoy.

• Deposits growth also continued to outpace industry at 7.5% qoq and 13.5% qoq while CASA growth was encouraging at 3.9% qoq and 12.5% yoy to 33.7% of total, still among the highest in industry.

• Will continue to focus on its niche SME and deposit franchise, enhance customer trade and FX flow, reduce investment volatility and extract more values from existing customers (still underleveraged) via wealth management.

• Slight strategic shift to risk adjusted returns for loans which mean lower expected loans growth of high single-digit vis-àvis aim to grow deposits double-digit.

• FY15 ROE KPI at 12-13%, lower than unchanged mediumterm target of 14-16%, on more challenging envi ronment, continued pressure on NIM and slower loans growth.

Risks

• Unexpected jump in impai red loans and lower than expected loan growth. Intense competition from much bigger players.

Forecasts

• FY16-17 cut by 15% to reflect FY16 ROE KPI. In view of transition to risk adjusted returns, we have opted to be more conservative with projected ROE at the lower end of its KPI.

Rating

HOLD

Positives

• Strong asset quality and deposit franchise (the latter helps in protecting NIM), strong niche in consumer and SME, potential M&A excitement and robust capital.

Negatives

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

Valuation

• Target price cut to RM4.92 (vs. RM5.25) based on Gordon Growth with ROE of 12.2% and WACC of 9.5%. With lower potential return and near-term ROE, we downgrade our rating on the stock to Hold.

Source: Hong Leong Investment Bank Research - 28 May 2015