Period     4Q13/12M13

Actual vs.  Expectations     The FY13 PAT of RM1,635.1m was within the consensus forecast (100%) and that of ours (96%). 

Dividends    The group has proposed a final single-tier dividend of 15 sen/share.

Key Result Highlights      The 4Q13 net interest income grew 9.4% QoQ and 7.3% YoY to RM573.6m backed by a 10bps increase in the net interest margin to 2.70%.

The group has maintained its tactical strategy of growing its targeted segments and has made steady progress in rebalancing its loans and deposits portfolio. The group loans grew by 3.5% QoQ and 8.9% YoY to RM84.8b vs. our forecast of 13% YoY. The lower thanexpected loan growth was due mainly to slower consumer loans growth of +5.9% YoY, which account for 58% of total loan, due to the stricter Responsible Finance guideline. Nonetheless, the total loans growth was somewhat cushioned by Business loans (+11.1% YoY) and Corporate loans (+17.0% YoY). 

Meanwhile total deposits grew 10.1% YoY, slightly above our expectations of 9%. This led to a slightly lower LDR of 88.7% in FY13 (vs. 89.5% in FY12). The total deposit of RM93.1b consisted of 20.0% CASA. 

Overall, the trading and fee incomes saw another disappointed quarter. However, the strong non-interest income (+4.5% QoQ) of RM578.5m, which made up 50% of the total income, was due to a 6-month contribution from Kurnia.  

Gross impaired loans held at RM1.68b with the gross impaired ratio improving to 1.98% (from 2.04% in 2Q13). Loan loss coverage hit a high at 129.3%. The group reported full-year loan loss charges of RM173.3m or a credit charge of 21bps. 

Operating expenses were higher on one-off acquisition expenses, for Kurnia and MBFCards, with the cost-toincome ratio standing at 46.9% in FY13 (vs. 40.6% in FY12) as against our expectation of 45%.  

In summary, the achieved FY13’s ROE of 14.7% was in line with management’s guidance and our expectation of 15%.

Outlook    The management reiterates the Group’s medium-term aspirations (FY15-16), which are (i) growing its PAT in the 12%-14% (CAGR) range, (ii) targeting a loan growth of 10% and (iii) aiming to achieve 14.5%-15.5% in ROE.  

The 9.3% Core Capital Ratio will enable the group to support a conservative 40%-50% dividend payout ratio.

Change to Forecasts      We are maintaining our FY14E PAT forecast of RM1,902.0m.

Rating    MAINTAIN OUTPERFORM

Valuation     In line with the current bullish market sentiment,  we have increased our target price to RM7.90 (from RM7.40) after assigning a higher PBV multiple of 1.8x, representing +1SD of 5-year average (from 1.7x previously), to the group’s FY14 BV.  The TP implies an undemanding 12.5x FY14 PER.

Risks    Tighter lending rules and a margin squeeze.

Source: Kenanga