Results

• Within expectations. 2QFY16 core net profit of RM134.7m (qoq: +10.4%; yoy: -25.3%) took 1HFY16 net profit to RM256.6m (-17.5%), accounted for 48-50.3% of consensus and our full-year forecasts.

Deviations

• Broadly in line.

Dividend

• Declared 1st interim of 8 sen (ex-date: 15 Dec; payment date: 30 Dec). For the full-year, we are projecting total DPS of 14.8 sen (assuming DPR of 45%), translating to net yield of 4.2%.

Highlights

• Achieved annualized ROE of 13.9%, slightly higher than KPI target of 12-13%. 2QFY16 net profit increased by 10.4% qoq to RM134.7m mainly on 1.7% loans growth, NIM expansion as well as higher non-interest income (arising mainly from higher MTM gains). However, 2QFY16 net profit was lower yoy (-25.3%) due to lower NIM and non-interest income, as well as normalization of provision.

• Deposit growth recovered to 0.3% (from -1.6% in 1QFY16), while loans growth expanded to 1.7% (from 1.1% in 1QFY16), thus resulting in LDR increasing to 85.4%.

• Asset quality deteriorated marginally, with impaired loan and GIL ratio increasing to RM426.7m and 1.1% (from RM376.1m and 1% in 1QFY16), while credit charge increased to 5.1bps (from 4.6bps in 1QFY16). The slight deterioration in asset quality was due mainly to RM43m increase in Restructured & Rescheduled (R&R) loans (which has in turned resulted in RM5m provision charge).

Risks

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

Forecasts

• Maintained.

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 maintained at RM4.15 based on Gordon Growth with ROE of 11.1% and WACC of 9.5%, and our HOLD recommendation on the stock.

Source: Hong Leong Investment Bank Research - 30 Nov 2015