HL Bank’s FY13 net profit rose 7% y-o-y to MYR1.86bn, mainly driven by non-interest income. Still, the group’s FY13 net profit was 5% below our and 3% below consensus estimates, with both net interest margin (NIM) and  loan  growth  falling  short  of  our  assumptions.  We  tweak  our  FY14 net  profit  forecast  2.5%  lower  and  reduce  our  FV  to  MYR15.20  (from MYR15.40). Our Neutral call, however, is unchanged.

- Results  below  expectations.  HL  Bank’s  4QFY06/13  net  profit  of MYR416m  (+3%  y-o-y;  -8%  q-o-q)  missed  our  and  consensus expectations, with the FY13 net profit of MYR1.86bn (+7% y-o-y) coming in 5% and 3% below our and consensus estimates respectively. The key variance  was  weaker-than-expected  net  interest  income,  with  both  loan growth and net interest margin (NIM) falling short of our assumptions.

- The highlights. The q-o-q net profit drop was due to a combination of: i) weaker operating income (-5% q-o-q), as net interest income dipped 1% q-o-q due to net interest margin (NIM) pressure (-8bps q-o-q) and lower non-interest income (-15% q-o-q) as a result of lower gains from sale of securities  and  lower  forex  gains;  and  ii)  higher  overheads  (+8%  q-o-q), although  management  said  this  was  partly  seasonal.  For  the  full-year, FY13’s  net  profit  growth  was  driven  by  stronger  non-interest  income (+25%  y-o-y)  as  the  mark-to-market  (MTM)  losses  from  derivatives (forex  and  rates)  in  the  previous  year  reversed  this  year  into  gains. Overheads were also lower by 4% y-o-y, although this mainly reflects the costs incurred in relation to the group’s voluntary  separation  scheme  in FY12.

- Briefing highlights. Management has guided for the following for FY14: i) loan growth of 10%; ii) deposit growth of high single digit; iii) NIM >2%; iv)  non-interest  income  contribution  of  26-28%  (FY13:  26%);  v)  CIR  of 42-45% (FY13: 46.1%); vi) credit cost of 25-30 bps; vii) ROE of 15-17%; and  viii)  a  dividend  payout  of  around  33%.  We  project  a  more conservative  FY14  ROE  of  14.5%  as  we  assume  a  loan  growth  of  7% and non-interest income contribution of 24.6%.

-  Forecasts. We tweak lower our FY14 net profit projection by 2.5% after incorporating the full-year results.

- Investment case. We lower our FV to MYR15.20 from MYR15.40, which also takes into account rolling forward our valuations. Maintain Neutral.

Source: RHB