No surprises with 9M16 core earnings of RM3,724m, which is within expectations and accounting for 75% of both consensus and our estimates. No dividend declared. As earnings were within estimates, we maintained our TP RM20.05 and MARKET PERFORM call.

9M16 was slower compared to the previous corresponding period as earnings growth was slower at 4% YoY. The slower growth in earnings was dragged by slower Net Interest Income (as loans grew slower by 5ppts to 7.5%) and decline in Non-Interest Income by 8% due to lower contribution from forex and investment banking. On a positive note, NIMs improved by 3bps YoY while asset quality was stable with Gross Impaired Loans (GIL) ratio still at 0.5%. On QoQ basis, net profit fell by 1.4% dragged by higher provisions. Loans growth was slower at 1.7% despite lower lending rates, but deposits growth improved QoQ. No change in asset quality as GIL was flat.

9M16 vs. 9M15, YoY

• 9M16 net profit advance was slower at 4.3% (9M15: +9.3%) on the back of: (i) lower total income of +4.9% (vs 9M15: +10.0%), and (ii) higher opex of 11.1% (vs 9M15: 9.9%)
• Income was driven by strong performances from: (i) net interest income (NII) at +8.4% (9M15: +7.9%), (ii) rebound in performance from Islamic Banking at +13.7% (9M15: -0.2%), but mitigated by (iii) drop in performance from Non-Interest Income at 8.0% (9M15: +20.7%).
• NOII declined due to drop in contributions from forex, investment income and stockbroking income from 33% (9M15) to 24%.
• Net interest margin (NIM) improved by 3bps to 2.08% (9M15: 11bps compression) attributed to improved average lending yields by 9bps whilst cost of funds advanced by only 4bps.
• Loans and deposits growth rates were weaker for the period with growth of +7.5% and +7.3%, respectively (9M15: +12.9% and +10.4% respectively (vs. industry loan and deposit growth of +4.2% and +0.8%, respectively). Housing and corporate loans growth (contributing 46.9% of total loans) were slower for the period at +9.7% and +10.7%, respectively (9M15: +12.6% and +22.1%). With slightly stronger loans growth, LDR was almost flattish rising by a mere 20bps to 90.7% (vs. LDR of 89%).
• Current account and Savings account deposits (CASA) was slower at +3.2% (9M15: +8.7%); thus, percentage of CASA to customer deposits dipped by 100bps to 23.7% as deposits growth outpaced CASA growth (+7.3% vs +3.2%).
• Cost-to-income ratio (CIR) up by 180bps to 32.5% (but still below industry average of 48.8%) as opex outpaced total income by 6ppts at +11.1%. Higher opex was due to higher personnel costs (+9.5%) and establishment costs (+12.0%). Personnel costs contributed 70.3% of opex.
• No change in asset quality which was stable as gross impaired loans were flattish at 0.5% (vs industry average of 1.7%) with Credit charge ratio maintained at 0.13%. Loan loss coverage stayed above 100% at 109.5% (vs. the industry’s 89.6%).
• Annualised ROE dipped by 90bps to 15.2% as growth in shareholders’ equity outpaced growth in net profit by 6.4ppts at +10.7%.
• CET1 and Total Capital Ratio remained stable and healthy at 11.0% and 15.2% respectively and still above the regulatory required levels of 8.5% and 10.5%, respectively.

Source: Kenanga Research - 21 Oct 2016