Period    4Q12/FY12

Actual vs.  Expectations  The FY12 PAT of RM5,744.7m came in generally in line with the street's expectations, making up 102% of the consensus forecast and above that of ours (109%). 

Dividends   The group has proposed a gross final dividend payout of 33 sen/share less 25% tax with 4 sen cash and a 29 sen electable portion. The full year dividend payout ratio of 74.7% is in line with our estimates.  

Key Result Highlights  The 4Q12 net interest income grew steadily by 1.7% QoQ and 2.0% YoY to RM2,194.9m. The NIM was lower by 6bps to 2.36% given the softer 12.9% (YoY) loan growth during the quarter. The loan growth momentum was softer due to the tighter markets in the region. The 12.9% loan growth is hence below the bank's FY12 KPI target and our estimate of 16.2%.  The slower loan demand in Singapore and just stable growth in Malaysia were the key reasons for the unexciting loan growth. The domestic loan grew 11.8% (vs. 3Q12: 12.4% & 2Q12: 15.8%).

 Meanwhile, the 4Q12 non-interest incomes of RM2,036m were stronger by +3.1% QoQ.  The FY12 non-interest incomes of 8,122.5m were considerably strong (+13.0% YoY) thanks to: 1) a stronger Kim Eng's contribution, 2) transfer profits from the surplus in the insurance division and 3) a better fee-based income from the strong issuance of Islamic debt securities. As a result, the group's total income grew 12.1% YoY with non-interest incomes contributing to 48.9% of the total income.  

 The 4Q12 overhead cost of RM2.14b was +4.6% higher on staff cost and the cost-to-income ratio was up at 50.5% (vs. 49.4% in 2Q12) that within our expectation.

 The NPL outstanding balance of RM5.7b was lower in 4Q12 (from RM5.8b in 3Q12) with the net impairment ratio improving 13bps QoQ to 1.09%. The annual credit charged-off rate of 23bps to gross loans was within our estimate. 

 In summary, the annualised 16.0% ROE achieved has exceeded the group's 15.6% target and that of ours as well.

Outlook   During the post-result briefing, management said that the bank's outlook remained positive and that it would focus on: 1) extracting value from its regional platform to create top line synergies, 2) improving staff productivity and 3) changing the group's cost structure to improve efficiency.

Change to Forecasts  We are raising our FY13 earnings by 13.0% to RM6.1b (from RM5.4b previously) as we incorporated in higher non-interest incomes contributions from Kim Eng and the insurance division and introducing FY14 PAT at RM6.6b.

Rating  Maintain OUTPERFORM

 Our OUTPERFORM rating is maintained as the current share price implies a 28% total upside (together with a 6.3% net div. yield) to our Target Price (TP).

Valuation    Our revised Target Price of RM10.90 (RM10.40 previously) is based on an unchanged 2.0x FY13 P/BV and implies a 14.5x FY13 PER.   

Risks   Unexpected slowdown in its fee incomes.

Source: Kenanga