Results

• 1Q16 net profit of RM813.8m (qoq: -1.4%; yoy: +40.3%) came in below expectations, accounting for only 19.1% and 20.9% of our and consensus full-year forecasts.

Deviation

• Largely due to weaker-than-expected NOII.

Dividends

• -

Highlights

• Against FY16 headline KPI… Annualized ROE of 7.9% fel l short of management’s guidance of 10% (mainly on lower yoy loan growth), while CIR of 57.4% was higher than management’s guidance (on lower operating income). Annualized credit cost of 64bps was within management’s guidance of 60-70bps.

• QoQ… Excluding one-off MSS cost in Indonesia in 4Q15, 1Q16 net profit declined by 4.2% to RM813.8m, mainly on lower net interest income (arising from 2.8% loan contraction and NIM compression) and lower NOII, but partly mitigated by lower overhead expenses and provisions.

• The qoq loan contraction was due mainly to loan base contraction in Singapore, Indonesia and Thailand. Malaysia, on the other hand, registered qoq loan growth of 0.4%, slightly higher than system loan growth of 0.3%.

• Asset quality improved qoq… with absolute IL and GIL ratio declining by 3.3% and 2bps to RM8.8bn and 3.03%, while credit cost declined by 3.6bps to 15.8bps. While asset quality for Thailand and Singapore deteriorated, asset quality in Malaysia remained resilient, and Indonesia has started showing signs of improvement.

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 lowered by 10.5% and 3.2% to RM3.81bn and RM4.42bn, largely to account for lower NOII assumptions.

Rating

HOLD

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

Post earnings revision, TP was lowered by 9.9% to RM4.66 (based on Gordon Growth with ROE of 9.5% and WACC of 10.1%). Downgraded from Trading Buy to HOLD post earnings and TP revision.

Source: Hong Leong Investment Bank Research - 27 May 2016