12M16 core earnings of RM522m were within expectations accounting for 98%/99% of our/consensus estimates. A second interim dividend of 6.5 sen/share was declared raising total dividend for FY16 to 14.5 sen/share. We revised our earnings estimates slightly for FY17 and TP is raised to RM4.04 but MARKET PERFORM call maintained. 12M16 core net profit (CNP) was within expectation but declined by 1.8% YoY attributed to a 3% growth in net income but offset by higher allowances for impairments at 23.4% (RM40.6m). The 14.5 sen per share dividend declared (42% payout) was below our expectation of 16.4 sen/share (47% payout).

12M16 vs 12M15, YoY

• Total Income was boosted by positive increment in Net Interest Income (NII) and Islamic Banking Income at +3.3% and +8.5%, respectively (12M15: +5.4% and +6.7% respectively) but offset by a 1.5% fall in Non-Interest Income (NOII) at 1.5% (12M15: -6.2%).
• Reported NIM was flat at 2.15% attributed to improved yields and better pricing discipline despite rising cost of funds (we had assumed a flattish trend in NIMs).
• Cost to Income Ratio (CIR) rose by 1.68ppts to 48.4% as opex (+6.7%) outpaced net income growth. Higher opex due to higher costs in research, GST and personnel. The recorded CIR was healthier than the industry’s average CIR of 50.9%.
• Loans growth was lower the year before at +4.9% (12M15: +14.7%), deposits were slower at +3.2% (12M15: +13.7) vs. the industry loan/deposit growth of 6.4%/-0.9%. (We had expected growth of +8.7%/+5.7%). LDR rose 1.4ppts to 84.3% (industry average is at 86.9%) as loans outpaced growth. Loans were driven by the SME segment which grew 19.7% (FY15: +21.4%) whilst deposit growth was driven by the government and statutory bodies at +3.8% (FY15: +6.4). CASA ratio declined by 151bps to 32.1%.
• Assets deteriorated as Gross Impaired Loans (GIL) advanced by 23bps to 1.26%. (vs. industry’s GIL of 1.6%. Loan loss coverage improved to 109.1 (inclusive of Regulatory reserves of RM157.2m) from 102.7% a year ago. Credit charge cost was at 12bps (in line with our estimate).
• CET1 and CAR improved by 19bps and 403bps to 11.1% and 17.1% well above the regulatory requirements of 7% and 10.5%), respectively.
• ROE for the year was at 11.2% (we had expected it to be at 11.2%).

4Q16 vs. 3Q16, QoQ

• CNP declined by 4.2% (3Q16: +0.7%) dragged by declining Total Income by 2.3% (3Q16: -1.3%).
• Not much compression on NIM as it fell marginally by 3bps to 2.12%.
• After rising by 3ppts in the 3Q, CIR rose by another 2.8ppts in the current quarter.
• Loans growth moderated at +0.3% (3Q16: +1.8%) while deposit growth rebounded by +5.7% (3Q16: -1.2%). This led to LDR shrinking by 4.6ppts to 84.3%. at the same time, CASA also fell by 2.9ppts to 32.1% (as opposed to 3Q16 when it rose by 1.41ppts back then).
• Asset quality deteriorated by 18bps to 1.26% but lower loan loss allowances led to credit cost improving by 3bps to 0.12%.

Source: Kenanga Research - 27 May 2016