Period  2Q15/1H15

Actual vs. Expectations 2Q15 net profit of RM47.4m brought 1H15 net profit to RM103.7m.

 This met expectations; accounting for 47% and 49% of our full-year estimate and street numbers, respectively.

Dividends  A first interim single-tier dividend of 27.4 sen was declared in respect of FY15. Shares trade ex-dividend on 1 Nov 2014 and payment will be made on 21 Nov 2014.

 Anticipate a second and final dividend of c.32 sen to be declared in April 2015.

Key Results Highlights YoY, 1H15 net profit advanced 22.8% mainly due to the excellent growth in net interest income (NII) to RM292.9m (+36.7%). Growth in other operating income (including fee income) was also commendable at 20.5%. This resulted in a 32.4% increment in total income to RM373.4m.

 Nevertheless, growth at the net profit level decelerated as impairment loss allowance jumped to RM105.9m (+69.2%).

 All financing segments reported double digit growths, led by the motorcycle easy payment segment (+38% to RM140.3m) and the car easy payment segment (+134% to RM48.6m). However, annualised net interest margin continued to be lower by an estimated 16bps due to the overall tougher operating environment.

 As expected, annualised credit cost ratio was higher, at an estimated 6.0% (+87bps) likely due to higher living costs.

 Meanwhile, annualised return on equity (ROE) was lower at 29.5% (-3.1ppts), compared to the ROE achieved in FY14, as retained earnings grew 16.2%.

 QoQ, 2Q15 net profit retraced (-15.7%) despite a marginal improvement in total income to RM188.2m (+1.7%). Growth in NII was a smallish 3.9%, while other operating income declined 12.2%.

 The lower 2Q15 net profit was mostly caused by (i) a big increase in the CI ratio to 34.6% (+38bps), and (ii) as allowance for impairment losses on receivables inclined to RM59.6m (+28.9%).

Outlook  Due to a weaker consumer sentiment, higher percentage of current year receivables (64% at May 2014 vs. 55% at May 2013) and a more challenging business environment, we are expecting a deceleration in the growth of gross financing receivables to around 19% (FY14: 52.2%).

 We also expect the trend of net financing margin compression to continue. In fact, we have factored in an aggressive squeeze of ~90bps in FY15.

Change to Forecasts No change in our earnings estimates.

Rating Reiterate OUTPERFORM

 At current market price, our current valuation could potentially add a nice 12.5%.

Valuation  Our Target Price (TP) remains unchanged at RM17.80, based on a blended FY15 price-to-book (PB) ratio of 3.7x and a FY15 price-to-earnings (PE) ratio of 10.8x.

 The multiples applied build in the assumption that PB ratio may gradually approach its 3-year average of ~3.5x from its historical FY13 & FY14 PB ratios of 4.1x and 3.8x, respectively, in line with the lower ROE, while PE ratio should trend downwards to c.11.4x which is the 3-year average due to slower growth going forward.

Risks  Much slower growth in top-lines.

 Higher-than-expected rise in operating and credit costs.

Source: Kenanga