Period    3Q13/9M13

Actual vs. Expectations    The 9M13 PAT of RM1,440.0m was within the consensus expectation (76%) and that of our estimate (75%). The weaker 3Q13 PAT of RM454.3m (-10.6% QoQ, -22.9% YoY) was due to lacking of impairment recovery that enjoyed in previous quarters.

Dividends     No dividend being declared.

Key Result Highlights     The results showed a flat or 2% QoQ revenue growth.

Loans growth of 7.7% YoY was below the industry of 11% and that of ours 10% estimate.

The net interest income came in at RM637.2m, which was up marginally by 3.5% QoQ. The increase was due to the expanding in the NIM by 5bps in 3Q13 to 1.74% (vs. 2Q13’s 1.69%) thanks to better asset yield. Nonetheless, the results showed an unexciting -0.3% QoQ (but +6.4% YoY) in non-interest incomes to RM387.7m due mainly to gains from treasury operation.

Fortunately, the cost at RM458.0m was up only moderately by 1.4% QoQ due to the strong cost management initiatives that extracted efficiencies and synergies. This resulted in a cost-to-income ratio of 44.7% (2Q13: 45.0%), which was within expectation.

Meanwhile, provisioning has normalised in 3Q13 that saw a total RM41.1m being provided. With the adoption of MFRS139 and proactive credit recovery efforts, the net impaired ratio improved further to 1.41% (from 1.49% in 2Q13). While the loan loss coverage ratio up to 141.1%, we still expect this low credit cost to continue until the year-end.

Chengdu Bank’s profit contribution meanwhile was higher at RM62.1m (vs. 2Q13: RM68.5m).

The 3Q13’s annualised ROE at 14.4%, was lower than 2Q13’s 16.4%, but was within our expectation.

Outlook      This uninspiring set of results is largely a non-event. We are maintaining our view that the fundamentals of HLBANK are still good, however, its valuations are not attractive at this juncture.

We believe the stock’s recent performance could have already fully priced in the integration synergies (on revenue and cost) in our view.

Change to Forecasts     There are no changes to our earnings estimates.

Rating      Maintain MARKET PERFORM.

At the current share price level, the stock only offers a 4.1% upside to our target price. Together with the projected dividend yield of 2.4%, the stock still offers less than 10% in total return.

Hence, we are maintaining our MARKET PERFORM rating.

Valuation     Our TP is maintained at RM15.20, representing a 2.0x valuation of its FY14 BV of RM7.65, implying a +1SD from PBV mean, or 13x FY14 PER.

Risks    An unexpected higher dividend payout could drive up its valuation.

Source: Kenanga