As the ASEAN economic region remains challenging and coupled with management’s guidance of a much slower loans growth, we revised our earnings downwards and along with a lower TP and revised our call to MARKET PERFORM.

9M16 core net profit (CNP) of RM4,382.4m (-16% YoY) was within expectations accounting for 72% of both our and consensus estimates. Higher impairments (+60% YoY) dragged bottom line as top line improved slightly by 3.7%. Loans growth was disappointing falling by 0.7% dragged by declining international loans (-5.6%) while domestic loans grew 2.9%. NIM continued to be under pressure falling by 11bps attributed to lower yields from securities portfolio. Asset quality continued to deteriorate by 68bps to 2.2%. On a quarter to quarter basis, CNP improved by 55% due to the absence of lumpy impairments. Top line growth was disappointing, growing slowly to 2.1% brought about by surging Non-Interest Income by 13%. For the quarter, loans improved by 2% but deposits declined by 0.4%. No dividend was declared for the quarter.

9M16 vs 9M15, YoY

• Compared to the previous corresponding period, top line growth was slower at +3.7% with slower pace across the board; Net Interest Income (NII), Islamic income and Non-interest income (NOII) growing slowly at +5.2%, 1.3% and 2.4%, respectively. Noninterest income (NOII) was dragged by higher insurance claims (+29.6% to RM3.5b) and lower forex gain of only RM308m. Islamic banking income was supported by a healthy financing growth of +9.8%
• Annualised NIM fell by 11bps to 2.1% attributed to lower yields from securities portfolio. Falling lending yields (15bps) outpaced the fall in cost of funds (7bps).
• Cost Income Ratio (CIR) inched slightly by 1ppts to 49.0% (vs. industry’s CIR of 48.8%) as opex (+5.8%) outpaced top line growth. Falling marketing expenses (-21.1%) constrained opex costs but negated by higher establishment costs of +18.6%.
• At the PBT level, Malaysia is still the biggest contributor, accounting for 77.3% (upped by 2ppts) followed by Singapore at 10.2% (lowered by 3ppts) and Indonesia at 8.4% (improved by 6ppts).
• Loans declined marginally compared to the previous corresponding period at 0.7% vs. our estimate of +5.1% and the industry average of +4.2%. Loans were driven by domestic demand at +2.9% while international loans falling at 5.6%. Domestic loans were driven by Business Banking & SME (+10.1%) and mortgage at (+9.5%). Malaysia was still the biggest contributor at 57.5% (upped by 2ppts), Singapore at 25.3% (dipped by 1ppts) with Indonesia inching by 1ppts to 8.3%.
• Deposits (including investment accounts) were slower the previous corresponding period at 6.4% with domestic deposits growing at +5.6% vs. overseas deposits at +12.5%. Deposits were driven by FDs (+0.5%) with CASA growth flattish; hence, CASA ratio flat at 35%. With falling loans growth, LDR fell 7ppts to 90.9% (vs. industry’s +88.6%).

Source: Kenanga Research - 25 Nov 2016