Period     1Q13/3MFY13

Actual vs.  Expectations   The 1QFY13 PAT of RM150.8m was within the consensus forecast (24%) and that of ours (24%). 

Dividends    No dividend was proposed.  

Key Result Highlights   The 1Q13 net interest income was flat with a marginal increase of +2.7% YoY and -4.7% QoQ, due to the unexciting growth in gross loans of 0.3% QoQ.  However, its 9.6% YoY loan growth was within our forecast of 10%. Meanwhile, the total deposit was up marginally by 0.2% QoQ (0.2% YoY). The estimated NIM was lower by 10bps to 1.69% in 1Q13 from 1.79% in 4Q12 on a reasonable leverage with the L/D ratio at 80.1%.

The 1Q13 non-interest income of RM150.7m was softer after a strong performance in the 4Q, declining -3.5% and +3.1% QoQ and YoY respectively. On a whole, the total revenue came in slightly discouragingly at RM372.2m (-4.2% QoQ).

The write-back of RM13.3m was in line with the decline in the gross impaired loans to RM771.8m (from 4Q12’s RM790.4m) with the gross impaired ratio falling to 2.22% (from 2.88% in 4Q12). 

Cost was still high with a cost-to-income ratio at 46.3% during the quarter (vs. 47.5% in 4Q12).  

The achieved annualised ROE of 10.0% was within our expectation of 10.0%.

Outlook    With the share price trading at its book value, we believe that there is room for its trading multiple to improve further with new M&A news.

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

Rating  Maintain  OUTPERFORM

With the steady result performance, its current valuation at 1.0x FY14 P/BV with an estimated ROE of 10.0% is undemanding in our view and offers a favourable risk-to-reward proposition.  

Valuation     We have rolled forward our valuation year to FY14 and adjusted upwards our target price to RM5.20 (from RM4.40 previously) based on a higher targeted P/BV of 1.1x (from 1.0x previously) over its FY14 BV of RM4.70.

At current level, the stock offers a potential capital upside of 19% with an additional dividend yield of 3.0%, which brings the potential total return to 21% over the next 12 months.  Its ROE of 10.0% remains a conservative estimate and is highly achievable.

Risks    Tighter lending rules and a margin squeeze.

Source: Kenanga