3Q15/9M15
The RM273.4m net profit came in below expectations, accounting for 63%/56% of our/consensus estimates, dragged by further impairment losses.
No dividend was declared, as expected.
9M15 net profit fell by 56%, dragged by higher allowances for impairment losses of RM431m (9M14: RM26m).
Overall 9M15 was dragged by: (i) 18% fall in net interest income (NII), and (ii) 30% decline in other operating income (NOII).
NIM compressed by another 50bpts while Cost-toincome ratio (CIR) went up almost 3ppts to 23%.
Loan and deposits growth was even at 3.7% and 3.5%, respectively, resulting in flattish LDR at 114%.
Corporate loans/financing composed of 14% of total loans/financing (9M14:11%) whilst Personal Financing fell by 3ppts to 69%.
Credit costs went up by 170bpts but gross impaired loans ratio was up by only 10bpts to 7.0%.
Loan loss coverage was up by 18ppts to 88%.
Annualised ROE fell to 7.5% (9M14: 20%). 3Q15 vs. 2Q15, QoQ
Net profit declined by 26% dragged by allowances for impairment losses at RM196m (2Q15: RM134m).
NIMs fell by another 20bpts.
LDR improved by 2ppts to 114% with LLC up by 7ppts to 88%.
Asset quality continues to deteriorate with credit costs up by 70bpts and gross impaired loans ratio up by 10bpts.
Management is positive with the ongoing merger negotiations (with Bank Muamalat) and expects a positive outcome by year-end.
The merger, if materialise, will make the MBSB-Bank Muamalat entity bigger than BIMB with combined asset of RM62b vs. BIMB’s RM56b (as of 30 June 2015).
FY15-16E earnings slashed by 26-8% to accommodate the Group’s impairment programme which we understand will see another two quarters of elevated credit cost and lower loan growth.
As the merger talk is still ongoing, we did not factor in earnings from the potential merger with Bank Muamalat.
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Given the positive impact from the potential merger with
9M15 net profits fell by 56% dragged by higher allowances of impairment losses of RM431m (9M14: RM26m). The high impairment for the period was attributed to special adoption of higher impairment standards (of RM355m). Stripping off the adoption standards Group Net profit would have registered RM628m (9M14: RM622m).
Overall 9M15 performances were dragged by: (i) 18% fall in net interest income (NII), and (ii) 30% fall in other operating income (NOII) which led to total income declining by 7%. (9M14: +4% YoY).
NIM compressed by another 50bpts as corporate depositors demanded higher rates, while Cost-to-income ratio (CIR) went up almost 3ppts to 23%.
Loan and deposits growth was even at 3.7% and 3.5% (vs. our expectations of 2% and 8%), respectively, resulting in flattish LDR at 114%. Loan growth was driven by corporate and auto loans/financing (at 34% and 45%, respectively) whilst deposits growth was driven by business enterprises.
Corporate loans/financing composed of 14% of total loans/financing (9M14:11%) whilst Personal Financing fell by 3ppts to 69%.
With the adoption of higher impairment standards, credit costs went up by 170bpts but gross impaired loans ratio was up by only 10bpts to 7.0%. However, on a positive side, loan loss coverage was up by 18ppts to 88% but still below management’s target of 100% (vs industry standard of 98%).
Annualised ROE fell to 7.5% (9M14: 20%) with the adoption of higher impairment standards. 3Q15 vs. 2Q15, QoQ
Net profit declined by 26%, dragged by allowances for impairment losses at RM196m (2Q:RM134m). Overall net profit was dismal due to 19% fall in NII but Islamic banking income and NOII improved by 2% and 11%, respectively. NIM fell by another 20bpts.
LDR improved by 2ppts to 114% with LLC up by 7ppts to 88%. However asset quality continued to deteriorate with credit costs up by 70bpts and gross impaired loans ratio up by 10bpts.
Management expects further impairment losses in the 4Q15 and into 2016 as it complies with standard banking industry practises.
Management indicated that there will be a manpower rationalization by year-end but only at selective levels to become more cost efficient.
Corporate loan/financing will be the engine of growth as it reduces its Personal Financing.
On a brighter note, management is positive with the ongoing merger negotiations (with Bank Muamalat) and expects a positive outcome by year-end.
Most of the components to become an Islamic Bank are in place as most of its retail products are already Islamic.
The merger will make the MBSB-Bank Muamalat entity bigger than BIMB with combined asset of RM62b vs BIMB RM56b (as of 30 June 2015).
We have revised our FY15/16E earnings based on the recent results. Our revisions are: (i) NIMs at 3.3% for FY15/16 (previously 3.5% for FY15/16E, (ii) CIR maintained at 23% for FY15/16E, (iii) credit costs at 180/130 bpts for FY15/16E (previously at 150/130 bpts), (iv) loan growth at 3.7/1.0% for FY15/16 (previously 2.1/2.3%), and (v) deposits growth of 3.5/3% for both FY15/16E (previously at +8/-1%).
Our revisions are based on MBSB is a standalone entity in FY16. We will revise accordingly once the new entity is confirmed.
Capital raising activities which could dilute ROE.
Corporate exercises, M&A and MSS.
Slower-than-expected growth in corporate lending/financing.
Higher credit cost arising from faster-than-expected deterioration in asset quality or lower disposable income.
Source: Kenanga Research - 16 Nov 2015
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