Results

• Within expectations. 4QFY16 net profit of RM129.8m (qoq: -4.2%; yoy: +39.2%) took FY16 net profit to RM522m (-1.6%), accounting for 99.8% and 102.3% of consensus and our forecasts.

Deviations

• Broadly in line.

Dividend

• Declared 2nd interim DPS of 6.5 sen (entitlement date: 15 Jun 16), bringing total DPS for the full year to 14.5 sen.

Highlights

• Achieved ROE of 11.2% in FY16, below KPI target of 12- 13%.

• QoQ… 4QFY16 net profit declined by 4.2% to RM129.8m, mainly on lower net interest income (which in turn was driven by 11bps NIM erosion amidst flattish loan growth of 0.3%) and slightly higher overhead expenses.

• Loan growth decelerated to 0.3% qoq (from 1.8% qoq in 3QFY16), while deposit resumed on uptrend (qoq growth of 5.7% vs. -1.2% registered in the previous quarter), resulting in LDR declining to 83.5% (from 88% in 3QFY16).

• Asset quality deteriorated marginally… with absolute IL and GIL ratio increasing by 16.6% and 18bps qoq to RM489m and 1.3%. Credit cost, on the other hand, declined to 1bps (from 2bps in 3QFY16).

• While expecting NIM to remain flattish and credit cost to increase (to 25bps from 12.5bps in FY16), management is targeting to achieve ROE of more than 11% in FY17, and this will be underpinned by high single-digit loan growth and higher fee based income.

Risks

• Unexpected jump in impai red loans and lower than expected loan growth. Intense competition from much bigger players.

Forecasts

• FY17-18 net profit forecasts fined-tuned by -1.5% and +4.3% to RM544.1m and RM629.1m, as we fine-tuned our assumptions on credit cost and NOII.

Rating

HOLD

Positives

• Strong asset quality and deposit franchise (the latter helps in protecting NIM), strong niche in consumer and SME, potential M&A excitement and robust capital.

Negatives

• Stiff competition from signi ficantly larger players with bigger scale and reach as well as relatively lower liquidity against peers.

Valuation

Maintain HOLD recommendation, with unchanged target price of RM3.89 based on Gordon Growth with ROE of 11% and WACC of 10.2%.

Source: Hong Leong Investment Bank Research - 27 May 2016