Results

• 2QFY15 net profit of RM1,196.8m (+2.2% qoq; +13.3% yoy) took 1HFY15 net profit to RM2,368.3m (+14.2%) and was in line with HLIB’s and consensus expectations or accounted for 49.1% and 49.9% of ours and consensus forecasts, respectively.

Deviations

• Largely in line.

Dividends

• First interim single-tier dividend of 24 sen (vs. 23 sen) with ex and payment on 12 and 24 Aug, respectively.

Highlights

• 2Q earnings were driven by continued strong loans growth (supported by on par deposits growth), non-interest income growth (from Public Mutual and transactional income) and lower provisions. These were partly offset by lower NIM and higher overheads (JAW narrower qoq but wider yoy). 1H performance is similarly driven by the same factors or line items while JAW widened.

• In terms of business segment, it was driven by the retail, fund management, treasury, corporate lending and overseas (especially Combodia), partly offset by HP and IB.

• Overall results are largely in line with its FY15 KPIs with loans and deposits growth slightly ahead of the targets.

• Although it expects continued competition and slower 2H, overall outlook for 2015 is still stable with GDP coming in at the lower end of official forecast and do not expect any change in OPR. Coupled with loans pipeline, guidance is in line with its FY15 KPIs.

• Applications are still flowing with some slowdown but are considered as stable, especially from the SME segment. Meanwhile, rejection rate is at the same level.

• Asset quality continued to improve both in absolute terms and in ratio (all-time-low) while LLC also improved to alltime- high level.

Risks

• Unexpected jump in impaired loans, lower than expected loan growth and higher than expected erosion in NIM.

Forecasts

• Unchanged.

Rating

HOLD

Positives

• Above industry asset quality and stronger capital position post rights issue;
• Excellent track record in delivering guidance and consistency in growth.

Negatives

• Uncertainty about quantum of counter cyclical buffer.
• ROE dilution from rights issue.

Valuation

• Target price maintained at RM18.56 based on Gordon Growth with ROE of 16.4% and WACC of 8.1%.

Source: Hong Leong Investment Bank Research - 31 Jul 2015