Results

• Within expectations 4QFY16 net profit of RM280m (qoq: -6.7%; yoy: -46.1%) took FY16 net profit to RM1.3bn (-32.1%), accounting for 97.6% and 99.4% of consensus and our forecasts.

Deviations

• Largely in line.

Dividend

• Proposed final DPS of 10.5 sen, bringing total DPS for the full-year to 15.5 sen.

Highlights

• QoQ… 4QFY16 net profit declined by 6.7% to RM280m, mainly on lower net interest income (arising from 11bps NIM compression amidst 1.1% loan growth), lower provision write-back and higher overhead expenses.

• Adjusted NIM compressed by 11bps qoq to 1.91% (reflected by loan portfolio rebalancing and higher funding costs). Moving into FY17, management sees minimal NIM compression, given the mix of loan growth strategy and manageable funding cost.

• Asset quality deteriorated on qoq… with absolute IL and GIL ratio increasing to RM1.7bn and 1.9% (from RM1.56bn and 1.77% in 3QFY16), mainly due to new impairment from large and well secured loans (predominantly in the O&G and property sector). Loan loss coverage declined to 81.1% (from 94.8% in 3QFY16), mainly due to impairment from sell collateralized loan and reduction in loan provision.

• Released 4-year strategic growth plan… which will focus on the key areas of transaction banking, credit card merchants, markets and wealth management.

Risks

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

Forecasts

• FY17-18 net profit forecasts are fine-tuned downwards by 2.9-4.4% to RM1.36bn and RM1.48bn respectively, as we tweak our credit cost assumption.

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 RM4.20) to RM4.14 (based on ROE of 8.8% and WACC of 10%). Maintain our HOLD recommendation on the stock.

Source: Hong Leong Investment Bank Research - 30 May 2016