Period 3Q13/9M13
Actual vs. Expectations
The 9M13 PAT of RM1,238.8m was
within the consensus forecast (74%) and that of ours (73%). However, the 3Q13
PAT of RM393.6m was 1% weaker on a sequential basis due to the one-off RM45.6m acquisition
expenses.
Dividends No
dividend was proposed during the quarter.
Key Result Highlights
The 3Q13 net interest income grew
1.1% QoQ but fell 0.7% YoY to RM524.2m. QoQ, the net interest margin was
squeezed by 4bps to 2.56% while there was just a moderate 1.3% loan growth in
3Q13. The marginal NIM compression was due to portfolio rebalancing as well as the
loan replacement cycle.
The group has
maintained its tactical strategy in focusing on growing its targeted segments
and has made steady progress in rebalancing its loans and deposits portfolio
with its loans growing by 9.2% YoY to RM83.3b vs. our forecast of 13%. The
fastestgrowing segments were still Business loans (+10.7% YoY) and Corporate
loans (+18.5% YoY). Consumer loans grew only +6.1% YoY due to the stricter Responsible
Finance guideline and regulatory reforms. Deposits meanwhile grew 11.4% YoY,
above our expectations of 9%, which led to a 160bps increase in the LDR to
91.8% vs. 88.7% in 2Q13. The total deposit of RM87.0b consisted of 17.7%
CASA.
Overall, we note that
trading and fee incomes were weak due a tough capital market during the
quarter. However, the strong RM553.7m non-interest income (+14.5% QoQ) was due
to the incorporation of Kurnia’s earnings and made up 51% of the total
income.
Gross impaired loans
held at RM1.7b with the gross impaired ratio improving to 2.04% (from 2.22% in 2Q13).
Loan loss coverage meanwhile hit a high at 123.5%. The group reported loan loss
charges of RM51.5m or a credit charge of 6bps for the quarter.
Operating expenses
were higher on one-off acquisition expenses but excluding this, it was well
managed with the cost-to-income ratio standing at 44.2% in 3Q13 (vs. 43.5% in
2Q13 and 40.6% in FY12). This is within our expectations of 45%.
In summary, the
achieved 9M13’s 14.2% ROE (annualised) was in line with management’s guidance. This
is within our expectations of 15%.
Outlook The group is maintaining its medium term
aspiration (FY13-15) to grow its PAT in the 9%-12% (CAGR) range with a loan
growth target of 8%-9% and a ROE target range of 14%-15%. The 9.2% Core Capital
Ratio will enable the group to support a conservative 40%-50% dividend payout
ratio.
Change to Forecasts
We are maintaining our FY13E PAT forecast of RM1,697.6m
and FY14E PAT forecast of RM1,902.0m.
Rating MAINTAIN OUTPERFORM
Our target price (TP)
implies a potential total return of 22.6% (together with a 4.8% net div.
yield).
Valuation Maintaining our TP at RM7.40 based on 1.7x
FY14 book value of RM4.38. The TP implies a 11.7x FY14 PER.
Risks Tighter lending rules and a margin squeeze.
Source: Kenanga
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