Results

• Within expectations. Excluding sale of Maybank PNG branch (RM197.3m), 3Q15 core net profit of RM1,701.6m (+7.4% qoq; +5.8% yoy) took 9M15 core net profit to RM4,986.5m (+4.2%), accounting for 74.2-75.8% of our and consensus full-year forecasts.

Deviations

• Broadly in line.

Dividend

• -

Highlights

• 9M15 ROE (excluding sale of Maybank PNG branch, (which was concluded in Sep-15) of 12% came in within management’s guidance of 12-13% in FY15. Meanwhile, reported loans growth of 17.8% and deposit growth of 12.6% beat management guidance of 8-9% and 10-11% respectively.

• For 3Q15, net interest income grew by 9.2% qoq (+20.3% yoy) to RM3.98bn, thanks to loans growth of 7.4% qoq (and+ 20.1% yoy), higher Islamic income but party offset by lower NIM. However, the higher net interest income and NOII (which was in turn boosted mainly by higher fee income, dividend income and forex gain) were dragged partly by higher overhead expenses and provisions (mainly due to asset quality deterioration in Indonesia and Singapore).

• Asset quality (AQ) deteriorated, with IL rising by 5.9% qoq (and 12.5% yoy) to RM7.2bn, mainly in Singapore and Indonesia, and this has resulted in credit charge rising to alltime- high of 14.9bps (from 7.1bps in 2Q15 and 1.9bps in 3Q14). Management is not overly concerned with the deteriorated AQ, as it expect both Malaysian and Indonesian markets to remain fairly stable, while the recent spike in NPL in Singapore was case specific, of which the exposure is mostly collateralized.

Risks

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

Forecasts

• Maintained.

Rating

BUY

Positives

• Improving domestic operations and expanding regional 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, deterioration in Indonesia asset quality (but BII is only a small contributor of profit ) and drag from subdued capital markets.

Valuation

• Target price maintained at RM10.27 (vs. RM11.30) based on Gordon Growth with ROE of 11.7% and WACC of 8.8%. We maintain our BUY call on the stock, given its compelling valuation (13.4x FY16 P/E) and attractive yield (6.3%).

Source: Hong Leong Investment Bank Research - 27 Nov 2015