1H16 core net profit of RM915m was within expectations accounting for 49%/47% of our/consensus estimates despite falling 15% YoY. An interim DPS of 5.0 sen/share was declared accounting for 45% of our expectation. Due to revisions in impairments and loans growth, we revised our earnings downwards with a lower TP MYR5.33 but maintained our MARKET PERFORM call.

1H16 core net profit (CNP) of RM915m fell 14.7% YoY, brought about mainly by one-off full impairment of RM253m from a single O&G-related related account in Singapore. Stripping of the impairment, CNP would have a positive variant of +8.8%. Loans growth was slower than expected at +4.9% YoY with NIMs facing downward pressure due to falling yields. On a quarterly basis, CNP fell 38% QoQ attributed to the one-off full impairment with NIMs continuing to fall (since 3Q15) due to falling yields. On a brighter side, loans rebounded to 1.4% QoQ and deposits surged 4.3% QoQ after two consecutive quarters of decline.

6M16 vs 6M15, YoY

• Total income rose 4.9% (6M15: +4.8%) driven by a strong fund based income where both Net Interest Income (NII) and Islamic income grew 6.3% and 13.1% (6M15: -0.4% and +21.4%), respectively. Strong Islamic banking income was supported by strong financing growth of +22.0%. Non-interest income (NOII) fell marginally by 0.9% (6M15: +7.9) due to lower fee income (- 3%) and lower forex gain (-15%) but negated by higher insurance underwriting (+53%). Fee income contributed 64% to NOII.
• Annualised NIM fell by 5bps to 1.9% due to pricing competition as cost of borrowings surged by 7bps vs. average lending yield falling by 5bps.
• Cost Income Ratio (CIR) was down by 5ppts to 49.5% (vs. industry’s CIR of 49.7%) as opex fell by 4.2% attributed to falling personnel costs (due to CTS in FY15).
• Loans/Deposits growth rates were decent at +4.9%/+4.4% (vs. industry average at +5.6%/-0.5%) but lower than our estimates of +7.1%/+7.6%.
• Loans growth was driven by business banking (+12%) while corporate loans falling by 4% impacted by large corporate payments (RM1b). Growth in deposits was led by corporate and individuals deposits at +5.3% and +8.8%, respectively.
• As loans growth marginally outpaced deposits growth, LDR was up by only 40bps to 92.4% (vs. the industry ratio of 87.5% with CASA ratio improving by 120bps to 24.8% driven by strong growth from both demand and savings deposits at +11.1% and +8.7%, respectively.
• Not much change in assets quality as GIL rose by 1bps to 2.06% (vs. industry ratio of 1.66%) impacted by the single account in Singapore. Loan loss coverage (LLC) was up by 3ppts to 59% but inclusive of the 1.2% regulatory reserve LLC is at 79.2% (vs. the industry coverage of 89.5% and above the regulatory requirements of 70%). Accounting for the one-off full impairment (from Singapore), credit cost was at 52bps vs. a credit recovery of 1bps in the previous corresponding period. Stripping off the oneoff impairment, credit cost would have been at 19bps.

Source: Kenanga Research - 25 Aug 2016