Period  1Q14

Actual vs. Expectations The reported 1Q14 net profit of RM544m (+14% YoY) accounted for 26.9% of consensus estimate of RM2.02b and 26.5% of our forecast of RM2.05b.

 The strong results were due mainly to writebacks in loans and other impairments amounting to RM33.3m during the quarter in contrast to our full-year provisions assumption of RM34.4m.

Dividends  No dividend was declared as expected.

Key Results Highlights

1Q14 vs. 1Q13 Net interest income, including Islamic banking operation grew by 4.1% YoY against its loans & financing growth of 7.1% YoY (but only 4.4% on annualised basis). The slower net interest income growth was due to a margin compression of 7 bps which were flat in 4Q13 (1Q14: 2.06%, 4Q13: 2.06%, 1Q13: 2.13%).

 Recall that management has guided that NIM should remain above 2% with the banking Group’s continuous efforts to improve funding cost. However, we have only factored in NIM of 2% for the next two financial years.

 The reported YoY growth in total loan is within our expectation of 7.5% but below management guidance of 10%. Mortgages and SME loans remained as the group’s core segment which grew 12.0% and 24.9% YoY, respectively.

 Customer deposits expanded mildly by 1.6% YoY with an improved CASA mix of 26.3% (vs. 25.9% in 4Q13 & 23.5% in 1Q13). Due to the slower deposit growth, loan-to-deposit (LD) ratio increased to 78.4% from 74.3% from 4Q13 but was almost flat in contrast to 78.6% in 1Q13. However, this LD ratio remains supportive for growth.

 Non-interest income, including Islamic banking operation, accounted for 26.3% of total income and remained fairly stable with a minor YoY decline of 1.1% due to lower gains from sale of securities. Nonetheless, fee income, which represented 60% of the total non-interest income, managed to improve 9.6% YoY due mainly to higher credit card related fees, service charges, processing fees and others fee income.

 The cost-to-income ratio (CTI) was maintained at 44.2% against 1Q13, but it was a significant improvement from 50.7% in 4Q13.

 The quarter saw further writebacks in loans and other impairments of RM33.3m vis-à-vis RM16.0m in 1Q13 and in contrast to our full-year provisions assumption of RM34.4m.

Source: Kenanga