The Group‟s 9MFY2012 net profit recorded a healthy y-o-y growth of 12.6%, exceeding our estimates but falling within consensus, underpinned by strong performances in Indonesia, Singapore and its corporate banking and treasury market divisions. While the regional economic environment continues to be challenging, we remain convinced the Group‟s diversity and prowess will help it weather externalities better and benefit more significantly on recoveries vis-à-vis its peers, reaffirming our Outperform call. We are leaving estimates unchanged on the expectation of slightly higher credit charges in the final quarter bringing numbers a little more in line. Our target price of RM8.50 is also unchanged, implying a potential upside of 10.8% from current levels.

Gross loans increase 9.8% y-o-y (excluding bad bank loans), outpacing deposit growth of 6.1% y-o-y. Were it not for significant foreign exchange fluctuations (-11.4% for IDR/MYR and -2.9% for THB/MYR), the Group‟s loans and deposit growths would have been a more impressive 12.1% and 9.0% respectively. Corporate loans increased 10.7% while retail and commercial banking loans advanced 8.9% and 11.0% respectively. Deposit growth was fuelled by a 9.0% expansion in the retail segment while commercial banking deposits chipped in with a 5.4% growth.

Margin compression not as pronounced. Current and savings account (CASA) deposits expanded by a healthy 11.3%, improving the ratio slightly to 34.6% from 33.0% last year. This steady growth in lower-cost deposit base helped minimize the impact of margin compressions which has affected its peers more pronouncedly in the face of significant competitive pressures. Net interest margins declined 0.04% to 3.08% for 9MFY12.

Asset quality strengthens. The Group‟s overall impaired loans ratio is still currently higher than the Malaysian and Indonesian industry average, but we expect to see continued improvements going forward on the back of restructured and/or recovered loans, amply reflected by the 1.3% y-o-y decline in its gross impairment ratio to 4.2% from 5.5% the year before. The Group‟s capital adequacy ratio meanwhile, is at a healthy 15.2% with a core capital ratio of 13.4%, leaving it in good stead to withstand potential shocks and also sees it ready for impending Basel III capital requirements.

Source: PublicInvest Research - 21 Nov 2012