Period     1Q13/3MFY13

Actual vs. Expectations   The 1QFY13 PAT of RM1,506.2m came in generally in line with the street’s expectations, making up 24% of the consensus forecast and that of ours (25%). 

Dividends    No dividend was announced.  

Key Result Highlights  The 1Q13 net interest income grew steadily by 1.0% QoQ and 9.0% YoY to RM2,411.3m. The NIM was higher by 2bps to 2.47% given the softer 12.1% (YoY) loan growth during the quarter. The loan growth momentum was softer due to the tighter markets in the region. The annualised 5.8% loan growth is hence below the bank’s FY13 KPI target and our estimate of 12.0%.  The slower loan demand in Malaysia was due to the slower corporate activities especially leading into the 13 th GE period. Meanwhile, the 1Q13 total non-interest income of RM2,058m was higher by +1.9% QoQ.  The group’s total income grew 6.2% YoY with non-interest incomes contributing to 35.4% of the total income.  

The 1Q13 overhead cost of RM2.30b was +2.4% higher on staff cost. The cost-to-income ratio was up at 51.4% (vs. 50.9% in 4Q12) but was within our expectations.

The NPL outstanding balance of RM6.1b was higher in 1Q13 (from RM5.7b in 4Q12) with the net impairment ratio higher 9bps QoQ to 1.18%. The annual credit charged-off rate of 11bps to gross loans was better than our estimate of 29bps. 

In summary, the annualised 14.2% ROE achieved is not too far off from the group’s 15.0% target and that of ours as well.

Outlook    During the post-result briefing, management said that the bank’s outlook remained positive in 2H2013 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   No changes in our earnings estimates.

Rating  Maintain OUTPERFORM

Valuation     Our unchanged Target Price of RM10.90 is based on an unchanged 2.0x FY14 P/BV and implies a 13.9x FY14 PER. 

  Our OUTPERFORM rating is maintained as the current share price implies a 15% total upside (together with a 5.7% net div. yield) to our Target Price (TP).

Risks    Unexpected slowdown in its fee incomes.

Source: Kenanga