Results

• Reported 3QFY15 net profit of RM1,201.4m (+0.4% qoq; +0.8% yoy) brings 9MFY12 net profit to RM3,569.7m (+9.3%), which is within expectations, accounting for 74.1- 75.3% of our and consensus full-year estimates.

Deviations

• Largely in line.

Dividend

• None.

Highlights

• 3Q earnings were lifted by continued strong loans growth (supported double-digit deposit growth albeit relatively slower), and non-interest income growth (from Public Mutual and transactional income), partly offset by higher overheads and lower NIM. 9M performance was similarly driven by the same factors or line items.

• In terms of business segment, the earnings were driven mainly by the fund management, treasury, corporate lending, overseas, partly offset by the retail, HP and IB.

• Overall results are largely in line with its FY15 KPIs with loans and deposits growth slightly ahead of the targets.

• LDR increased to 89.8% in 3Q15 (from 87% in 2Q15 and 87.8% in 3Q14), as deposit growth was slower vis-à-vis the loans growth. Nevertheless, we note that both deposit and loans growth (10.4% and 12.9% respectively) still exceeded its KPI targets of 9-10% while deposit growth also ahead of industry.

• Higher loan loss provision (+86.9% qoq and +144.3% yoy) was driven by higher CA (which in turn was driven by loans growth), and IA (which could in turn be due to festive season) as well as lower recovery.

• Although credit charge was higher at 4.3bps (or 17.3bps annualized), it is still in line with management’s guidance of below 20bps.

• Asset quality continues to Improve both in absolute terms and in ratio, while LLC also improved to all-time-high level.

Risks

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

Forecasts

• Maintained. 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 on quantum of counter cyclical buffer;
• ROE dilution from rights issue.

Valuation

• Target price maintained at RM18.56 based on Gordon Growth with ROE of 16.4% and WACC of 8.1%.

Source: Hong Leong Investment Bank Research - 23 Oct 2015