Results

• Within expectations. 3QFY16 net profit of RM135.6m (qoq: +0.7%; yoy: +7.3%) took 9MFY16 net profit to RM392.2m (-10.4%), accounting for 74.8-76.9% of consensus and our full-year forecasts.

Deviations

• Broadly in line.

Dividend

• None.

Highlights

• Achieved annualized ROE of 11.6%, slightly below KPI target of 12-13%. 3QFY16 net profit increased marginally (by 0.7%) to RM135.6m, driven mainly by 1.8% loan growth, higher Islamic income and lower loan loss provision, which more than offset slightly lower NIM (-1 bps to 2.18%), lower non-interest income and higher overhead expenses. On yoy basis, the 7.3% increase in net profit was driven mainly by an 8.5% loan growth, higher Islamic income, and lower loan loss provision, which more than offset a 5 bps deterioration in NIM and higher overhead expenses.

• Loan growth improved further to 1.8% (from 1.7% in 2QFY16), while deposit growth contracted by 1.2% qoq, resulting in LDR increasing to 88% (from 85.4% in 2QFY16). We note that CASA in 3QFY16 improved to 35.1% (from 33.7% in 2QFY16).

• Asset quality improved marginally, with both impai red loan and GIL ratio declined to RM418.3m and 1.08% (from RM426.7m and 1.12% in 2QFY16). Loan loss provision increased to 93% from 92.7% in 2QFY16, while credit charge declined to 2bps (from 5.1 bps in 2QFY16).

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

• Maintain HOLD recommendation, with unchanged target price of RM3.89 based on Gordon Growth with ROE of 11.1% and WACC of 10.2%.

Source: Hong Leong Investment Bank Research - 23 Feb 2016