Results

• Missed expectations. 4Q15 net profit of RM97.4m (qoq: -4.9%; yoy: -53.3%) took FY15 net profit to RM369.3m (-38.8%). The results came in below expectations, accounting for 90.7-92.8% of consensus and our forecasts.

Deviations

• Lower-than-expected loan growth (6.8% vis-à-vis 9% we assumed).

Dividends

• Proposed final DPS of 5 sen, bringing total DPS to 12.99 sen for the full-year, higher than our total DPS projection.

Highlights

• Missed FY15 headline KPIs. FY15 ROE and ROA of 4.6% and 0.6% fell short of management’s targeted ROE and ROA of 8% and 0.9% respectively, while GIL ratio of 1.9% came in higher than its targeted GIL ratio of 1.64%.

• 4Q15 net profit declined by 4.9% qoq to RM97.4m. the decline was due mainly to NIM compression and higher overhead expenses (but partly offset by higher Islamic and non-interest income, and lower provisions).

• Both loan and deposit growth improved qoq in 4Q15… br /> With loan and deposit growth improved to 3.6% (from 0.4%) 9% (from a decline of 6.7% inn 3Q15) in 4Q15, which in turn resulted in LDR declining to 85.7% from 90.2% in 3Q15.

• Asset quality on qoq ba si s… With absolute IL and GIL ratio declining by 11% and 36bps to RM834.2m and 1.9% respectively. Despite lower recoveries, loan loss provision and credit cost declined by 30% and 2.2bps to RM20.8m and 4.8bps, and this was due mainly to lower IA.

Risks

• Unexpected jump in impaired loans, lower loan growth and intense competition from much bigger peers.

Forecasts

• FY16-17 net profit forecasts lowered by 2-2.8%, as we lowered our loan growth assumptions.

Rating

SELL

Negatives

• Investors’ perception and its delinquency track record.
• Lowest NIM and ROE in industry, low deposit franchise (CASA only 19.2% of total deposits in FY15) and one of the highest percentage of fixed rate loans.

Positives

• Tier-1 capital purely equity while acquisition of Hwang enhanced its market share in broking;
• Potential M&A excitement given that it is one of the two remaining smallest banks with assets size of circa half of the next largest bank, AMMB.

Valuation

• Post earnings revision, target price was lowered by 1.7% to RM1.75 based on Gordon Growth (ROE of 6.3% and WACC of 8.3%).

Source: Hong Leong Investment Bank Research - 29 Feb 2016