Fair Value : RM17.00 | Recom : Outperform

Loan growth momentum still intact and expected to be sustained into 2013. There was no change in guidance for this year, i.e. domestic gross loan growth of 12% while group loan base was expected to expand at around 10-11% due to the slower growth from the overseas operations. Approval levels remain healthy and growing. With that, management reiterated that the domestic loan growth of 12% would be sustainable for 2013 (group loan growth would continue to lag). While this is not new, we view this positively as it helps provide earnings visibility for 2013, as well as reaffirming the resiliency of the group’s business model and ability for continued growth, especially in wake of recent weak global economic data.

NIM to remain under pressure but pace of compression to slow down ahead. Competition is still keen but the flipside is that pricing (both lending and deposit) has not deteriorated further. That said, NIM is expected to remain under pressure as higher-yielding loans are rolled-off the loan book. Management kept their guidance of NIM compression of around 15bps this year, but the pace of contraction is expected to slow down ahead with another 10bps compression guided for 2013.

Capital requirements. We continue to sense a more conservative stance in terms of capital, given the lack of clarity at this juncture in terms of the quantum of counter-cyclical capital buffer that BNM may require banks to hold. There are no plans at this juncture to adopt a DRP. We understand that this is because the group has a more diverse shareholding structure, which makes it more difficult to gauge how such a programme would be received. Should there be a shortfall in capital requirements, the preferred option is still to raise fresh equity. Thus, we suspect management is likely to keep the dividend payout conservative. We have assumed a net payout ratio of 47.5% for FY12-14, which we leave unchange for now. This is close to last year’s 48.3% payout, based on the orginal reported net profit.

Potential reduction in car prices not expected to have significant impact on the group. Of late, there have been reports of a potential reduction in car prices resulting from a possible review of the tariff and tax structures for the automotive industry. At this juncture, management thinks the chances of lower car prices is low and in any case, does not expect this to have a significant impact on the group. This is not withstanding the group’s larger HP exposure where the HP portfolio stood at RM40.5bn or 21.7% of gross loans (at end-Jun ’12 vs. system, where HP makes up 13.9% of system loans).

Forecasts. We have left our earnings forecasts unchanged.

Investment case. Fair value of RM17.00 (14x CY13 EPS) and Outperform call maintained.

Source: RHB Research - 27 Sep 2012