- HLBB's share price has performed exceedingly well yearto-date, appreciating by 26% from circa RM10.70/share at the beginning of the year. With the share price having performed strongly, the upside to our fair value is now less than 15% ' thus, the main reason for our downgrade in recommendation.

- HLBB posted a 15.2% QoQ decline in 4QFY12 net earnings. The QoQ decline came from softer investment and trading income in the non-interest income, an unexpected amortisation of goodwill (in relation to EON Bank's acquisition) of circa RM35mil, and increase in loan loss provision, with higher collective assessment charges arising from stronger loan growth. Overall FY12's net earnings was however in line with our forecast and -1.3% below consensus net earnings of RM1,669mil.

- Gross loans expanded by a much stronger pace of 3.3% QoQ in 4QFY12, compared with 3QFY12's flat 0.9% QoQ. This came mainly from the SME and working capital segment, with better momentum from its new community branch banking model. NIM declined by 5bps QoQ in 4QFY12, but in comparison, this was better than the 22bps QoQ drop in 3QFY12. The NIM compression was attributed to ongoing loan pricing pressure as well as deployment of excess liquidity into high-grade investments. 

- Gross impaired loans were reduced substantially by 11% QoQ in 4QFY12, partly from higher recoveries and partly from higher write-offs.  Gross impaired loans ratio has been lowered further, to 1.7% in 4QFY12 from 2.0% in 3QFY12. Loan loss cover continued to climb, to a comfortable 158.2% in 4QFY12 from 3QFY12's 149.0%.

- We now neither expect the company to explore a dividend reinvestment plan (DRP), nor increase dividend significantly ahead to utilise its section 108 tax  credit, which is estimated at circa RM800mil to RM900mil.

- HLBB's 4QFY12 was lower QoQ, partly due to amortisation of goodwill. However, FY12 net earnings is in line, and reflected smooth merger integration. We expect HLBB's share price to be sustained on further evidence of:- (a) stronger-than-expected topline loan growth; (b) evidence of revenue synergy for its fee-based income from its expanded customer base; and (c) earnings visibility and resilience.    

Source: AmeSecurities