Results

• Within expectations. Reported 1QFY17 net profit of RM323m (qoq: +15.3%; yoy: -4.9%), accounting for 23.7- 25.4% of our and consensus full-year forecasts.

Deviations

• Largely in line.

Dividend

• None.

Highlights

• QoQ… Although loan base declined by 0.8%, 1QFY17 net profit rose by 15.3% to RM323m mainly on the back of a 7bps NIM expansion and lower overhead expenses, which altogether more than offset lower NOII. Loan and deposit growth declined by 0.8% and 4% respectively, resulting in LDR increasing to 100.6% (from 97.3% in the previous quarter). Against the industry, we note that both loan and deposit growth lagged behind industry growth rates of 1.1% and 0.4% respectively.

• YoY… 1QFY17 net profit declined by 4.9% as 3.3% loan growth and lower overhead expenses were more than offset by a 13bps NIM compression and lower NOII. LDR increased to 100.6% from 93.6% a year ago, due to 3.3% loan growth and a 3.5% decline in deposits. Against the industry, we note that both loan and deposit growth lagged behind industry growth rates of 5.6% and -0.5% respectively.

• Asset quality improved on qoq basis, with GIL ratio declined to 1.7% (from 1.9% in 4QFY16) and loan loss coverage increased marginally to 81.2% (from 81.1% in 4QFY16). Yoy, GIL ratio declined to 1.7% (from 1.8% in 1QFY16) while loan loss coverage declined to 81.2% from 103.2% a year ago.

Risks

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

Forecasts

• Maintained.

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

Maintain HOLD recommendation, with unchanged Gordon Growth-derived TP of RM4.14 (based on ROE of 8.8% and WACC of 10%).

Source: Hong Leong Investment Bank Research - 23 Aug 2016