Results

• Ahead our foreca st, bu t within market expectation s… br /> 4Q15 core net profit of RM1,494m (qoq: -12.2%; yoy: -22.6%) took FY15 core net profit to RM6,481m (-3.5%), accounting for 105.3% and 97.4% of our and consensus forecasts respectively.

Deviations

• Better-than-expected NIM (2.42% vs. 2.24% we projected) and NOII, but partly offset by higher -than-expected loan loss provision.

Dividend

• Proposed final DPS of 30 sen, bringing total DPS for the year to 54 sen.

Highlights

• Against FY15 headline KPI targets… Excluding gains from disposal of PNG branch and property in 2H15, FY15 ROE of 11.3% fell short of management’s guidance of 12 -13%. Meanwhile, loan and deposit growth of 12.3% and 12.8% exceeded management’s gui dance of 8-9% and 10-11% respectively.

• Asset quality (AQ) deteriorated, with IL rising by 19.2% qoq (and 37.1% yoy) to RM8.5bn in 4Q15, while GIL ratio increasing to 1.86% (from 1.54% in 3Q15 and 1.52% in 4Q14), mainly in Malaysia, Singapore and Hong Kong/China (mainly on specific accounts). Credit cost, on the other hand, declined by 4.8 bps qoq to 10.1 bps in 4Q15, bringing credit cost for FY15 to 38.1 bps. Except for Singapore (which it sees an uptick in provisions), management remains comfortable with its AQ in Malaysia and Indonesia.

• Announced FY16 KPIs, with ROE of 11-12%, loan and deposit growth of 8-9% and 10-11%, credit cost of 40-50 bps, and stable NIM (albeit potential erosion).

Risks

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

Forecasts

• FY16-17 net profit forecasts were tweaked slightly higher, by 3.2% and 2.4% respectively, as we updated our forecast parameters.

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

• Post earnings adjustments, target price raised marginally (from RM9.78 previously) to RM9.82, based on Gordon Growth with ROE of 10.9% and WACC of 9%.

Source: Hong Leong Investment Bank Research - 26 Feb 2016