Results

• Within our expectation; slightly higher than consensus. Excluding non-core items, 4Q15 core net profit of RM850m (qoq: -5.8%; yoy: +238.1%) took FY15 core net profit to RM3,411m (+8%), accounting for 104.3-105.8% of our and consensus forecasts.

Deviation

• Largely in line.

Dividends

• Declared 2nd interim DPS of 11 sen, bringing total DPS for FY15 to 14 sen, lower than our projected DPS of 15.7 sen.

Highlights

• Against FY15 headline KPI targets… FY15 core ROE of 8.7%, fell short of management’s guidance, on the back of higher credit cost (77.1bps, higher than 40-50bps guided earlier) and CIR (55.6%, higher than 55% guided earlier). On the other hand, loan growth of 11.8% exceeded management’s guidance of 10%).

• NIM is guided to compress further by 5-10bps in FY16, given the competitive environment in Malaysia and Indonesia.

• Asset quality mixed… With IL declining by 10.7% to RM9.1bn, while GIL ratio by 35bps to 3.07% from 3.41% in 3Q15 (see Figure 5). Credit cost, on the other hand, increased to by 1.4bps to 19.5bps (from 18.1bps in 3Q15), bringing credit charge for FY15 to 77.1bps, due mainly to higher provision in Thailand and Indonesia. Moving into 2016, management guided a lower credit cost of 60-70bps, as it expects provisions in Thailand and Indonesia to decline (albeit gradually), and provisions in Malaysia to normalize (as there is limited room for improvement).

• FY16 KPIs announced… Targeting ROE of 10%, loan growth of 10%, credit charge of 60-70bps, CET 1 of 11%, CIR of less than 53%, and dividend payout ratio of 40%.

Risks

• Unexpected jump in impaired loans, lower than expected loan growth and impact on non-interest income i f there is a slowdown in capital markets.

Forecasts

• FY16-17 net profit forecasts tweaked slightly higher (by 1.7- 1.8%) as we updated our forecast parameters.

Rating

• Trading Buy

Positives

• - Proxy to economic growth and capital markets as well as regional universal bank platform, new core banking system (1Platform) and new T18 initiatives.

Negatives

• Impact on non-interest income when capital markets soften, impact of asset quality deterioration in Indonesia and legacy high cost structure.

Valuation

• Target price remains largely unchanged at RM5.17 (vs. RM5.16) based on Gordon Growth with ROE of 10.1% and WACC of 10.1%.

Source: Hong Leong Investment Bank Research - 26 Feb 2016