Results

• 3QFY16 net profit of RM300.2m (qoq: -21.5%; yoy: -28%) took 9MFY16 net profit to RM1,022m (-27%), which came in below our expectation, accounting for only 70.2% of our fullyear forecast. Against the market consensus, the results came in within market expectations, accounting for 74.7% of consensus full-year forecast.

Deviations

• Lower-than-expected NIM and NOII.

Dividend

• None.

Highlights

• 3QFY16 net profit declined by 21.5% to RM300.2m mainly on NIM compression, lower Islamic income and higher overhead expenses. All these were partly offset by a slight increase in NOII and lower CA.

• Adjusted NIM declined by 13bps qoq to 2.02% in 3QFY16, and management guided that NIM will remain under pressure, on the back of its ongoing portfolio rebalancing (reducing exposure to HP and focusing on organic growth).

• Loan growth was flattish, while deposit grew by 1.8% qoq, resulting in LDR decreasing by 1.6%-pts to 95.5% in 3QFY16.

• Asset quality improved on qoq basis, with absolute IL and GIL ratio declining by 7.9% and 15bps to RM1,563m and 1.77% respectively.

Risks

• Unexpected jump in impaired loans, lower than expected loan growth and impact from lower capital markets activities.

Forecasts

• FY16-18 net profit forecasts cut by 10.1%, 10.4% and 8.4% respectively, largely to reflect lower loan growth and NOII assumptions.

Rating

HOLD

Positives

• Value propositions from ANZ have improved asset quality and risk management. Recent mergers and life insurance partnership to enhance long-term recurring noninterest income.

Negatives

• Still searching for new leader, high LD ratio, relatively high earnings sensitivity to capital markets and slow asset growth arising from portfolio rebalancing towards lower risk segments.

Valuation

Post earnings forecast adjustments, Gordon Growth derived target price was adjusted downward (from RM4.36) to RM4.20 (based on ROE of 8.9% and WACC of 10%). Maintain our HOLD recommendation on the stock.

Source: Hong Leong Investment Bank Research - 29 Feb 2016