Maybank; Buy
Price Target: RM10.60; MAY MK

BII's 1Q13 net profit came in at 22% of our FY13F forecasts. Net profit of Rp309bn or RM103m improved 8% q-o-q and 16% y-o-y. This is equivalent to 7% of our forecasted 1Q13 earnings for MAY, similar proportion as in 4Q12.

Key drivers during the quarter were growth in SME, mortgage and 4-wheeler loans, coupled with strong deposit growth (largely time deposit driven). WOM Finance kept its profitable trend recording Rp7bn (RM2.3m); WOM Finance only returned to the black in 4Q12 when it recorded Rp7.6bn (RM2.5m). But WOM Finance's 2-wheeler portfolio was impacted by the new LTV rule. In addition, asset quality significantly improved with gross NPL ratio declining to 1.4% (4Q12: 2.2%). Asset quality of WOM Finance's 2-wheeler portfolio also improved.

Elsewhere, NIM declined by almost 20bps y-o-y to 5.3% due to competitive pressures. Loan-to-deposit ratio improved to 88% (4Q12: 93%).

Expenses remained on an uptrend due to continued branch and electronic network expansion and investments in IT infrastructure and human capital. Cost-to-income ratio remained at the higher end of the industry at 65.7% although lower compared to a year ago at 70%. BII currently has 415 branches. BII will continue to re-balance its 2-wheeler and 4-wheeler mix. We believe there will be more focus on 4- wheelers while it selectively grows 2-wheelers. Competition is quite intense for new 4-wheelers and 2- wheelers.

Judging from the segment of growth during the quarter, it appears that BII is gearing up its retail business in addition to improving its funding composition (CASA to total deposit is still low at 37%).

BII is planning a Rp1.5trn (RM500bn) rights issue to raise its core capital in 1H13 to fund its growth. We remain positive on BII's growth prospects and believe it is poised to be MAY's re-rating catalyst. We have a BUY rating for MAY with a RM10.60 TP. Note that MAY has gone ex-div on 25 April and the DRP is applicable. MAY declared 28.5sen net dividend during its 4Q12 results.

Source: HwangDBS Research - 29 Apr 2013