The 2012 PAT of RM1,648.2m was within the consensus' expectation (98%) and that of ours (102%). The 4Q12 PAT of RM394.6m was down 15.1% QoQ due to lower revenues as well as a higher integration cost booked in the quarter.  

Dividends   A final dividend of 27 sen per share less income tax of 25% for FY2012 was declared.

 QoQ, total revenue dropped 4.4%, indicating that gains from its integration synergy could have been fully recognised by now. Net interest income was registered at RM635.4m down marginally by 2.6% while loans grew 3.31%. The decline in net interest income reflecting NIM fell more than expected by 5bps in the 4Q12 to 2.08% (vs. 3Q's 2.13%). The result also saw an uninspiring RM330.5m in non-interest incomes in 4Q12, which fell by 6.9% due to forex and hedging losses.  

 Cost was higher at RM476.0m upped 6.1% QoQ due to a higher integration cost booked. This resulted cost-toincome ratio rising to 49.3% from 3Q12's 44.5%.  

 Provision in FY12 was still running at a below industry average rate of 13bps. However, due to better asset quality, which is reflected by a low net impaired ratio of 1.69% (from 1.96% in 3Q12), the coverage ratio to improve further to 158% (from 149% in 3Q12).

 Chengdu Bank's profit contribution meanwhile was higher at RM59m (3Q12: RM61m).   

 The overall ROE remained steady at 17.8% vs. our estimate of 15% (on average basis).

Outlook   The combination of HLBANK and EON Bank has led to top line synergies. Net interest margin has also improved but as the loan-to-deposit ratio is relatively low at 72%, this could signal the peak of NIM in the current quarter against the backdrop of a competitive environment.

Hence, its merger synergy with EONCAP, which is expected to be value accretive, could have been fully exploited by the group by this quarter in our view. 

 No change in our earnings estimates. 

Rating   Maintain MARKET PERFORM

 Although the fundamentals of HLBANK are still good, its valuations are, however, not attractive at this juncture. The stock's recent performance has already fully priced in the integration synergies (on revenue and cost) in  our view.  

Valuation    We raise our TP to RM13.00 (from RM10.90 at 1.7x Bv previously) with a higher multiple of 1.9x on the updated FY13 BV of RM6.50 after our earnings estimates updates for year end numbers.  We expect the enlarged group's  ROE to be higher in FY13 at 17% in FY13.

Risks   An unexpected higher dividend payout could drive up valuation.  

Source: Kenanga