[Maybank IB] Today's Research - Malaysia

FEATURE CALLS Malaysia | CIMB Group Holdings Niaga’s 1Q16 results weak Desmond Ch'ng

COMPANY RESEARCH SP Setia | Buys land in Melbourne CBD Wei Sum Wong MRCB-Quill REIT | 1Q16 results in line Kevin Wong

SECTOR RESEARCH Malaysia Banking | Loan growth decelerates Desmond Ch'ng

MACRO RESEARCH Malaysia | Moderated as deposits fall, loans slow Suhaimi Ilias

NEWS Outside Malaysia Other News

COMPANY RESEARCH

Malaysia Rating Change CIMB Group Holdings (CIMB MK) by Desmond Ch'ng Share Price: MYR4.67 Target Price: MYR4.40 Recommendation: Sell Niaga’s 1Q16 results weak CIMB Niaga’s (Niaga) 1Q16 earnings came in below our expectation, as provision levels remained more elevated than expected. We nevertheless maintain our forecasts for now, given that MSS savings should kick in, in full, from 2Q16 onwards, while credit costs should moderate further in 2H16. Niaga’s operating environment remains challenging and with capital markets still weak, much is priced in - we downgrade CIMB Group to SELL, with an unchanged MYR4.40 TP, pegged to a FY16 PBV of 0.9x. FYE Dec (MYR m) FY14A FY15A FY16E FY17E Operating income 14,145.9 15,395.8 16,233.0 17,140.1 Pre-provision profit 5,854.0 6,146.8 7,033.3 7,568.9 Core net profit 3,159.0 3,411.2 3,917.5 4,163.7 Core EPS (MYR) 0.38 0.40 0.46 0.49 Core EPS growth (%) (31.1) 5.6 14.1 6.3 Net DPS (MYR) 0.15 0.14 0.19 0.21 Core P/E (x) 12.3 11.6 10.2 9.6 P/BV (x) 1.0 1.0 0.9 0.9 Net dividend yield (%) 3.2 3.0 4.1 4.5 Book value (MYR) 4.53 4.87 5.10 5.39 ROAE (%) 9.3 8.7 9.3 9.4 ROAA (%) 0.8 0.8 0.8 0.8 Desmond Ch'ng    (603) 2297 8680    desmond.chng@maybank-ib.com

Malaysia Company Update SP Setia (SPSB MK) by Wei Sum Wong Share Price: MYR3.22 Target Price: MYR3.86 Recommendation: Buy Buys land in Melbourne CBD We are positive on SPSB’s latest acquisition in Melbourne CBD. The land is strategically located in the Melbourne CBD and we estimate a development net profit of MYR333.5m (+13sen EPS) in FY2020-23. We maintain our earnings forecasts and MYR3.86 TP (on unchanged 30% discount to RNAV) for now. SPSB is our top BUY for the property sector. FYE Dec (MYR m) FY14A FY15A FY16E FY17E Revenue 3,810.1 6,746.3 5,319.9 6,456.7 EBITDA 1,107.6 2,063.3 1,170.4 1,420.5 Core net profit 376.0 918.3 659.7 940.6 Core EPS (sen) 14.9 35.7 24.9 35.5 Core EPS growth (%) (17.2) 140.1 (30.2) 42.6 Net DPS (sen) 9.7 23.0 14.9 21.3 Core P/E (x) 21.7 9.0 12.9 9.1 P/BV (x) 1.0 0.9 0.8 0.8 Net dividend yield (%) 3.0 7.1 4.6 6.6 ROAE (%) 6.6 13.9 8.8 12.0 ROAA (%) 2.9 6.2 3.8 5.1 EV/EBITDA (x) 10.1 4.9 9.0 7.4 Net debt/equity (%) 32.5 19.5 21.5 20.5 Wei Sum Wong    (603) 2297 8679    weisum@maybank-ib.com

Malaysia Results Review MRCB-Quill REIT (MQREIT MK) by Kevin Wong Share Price: MYR1.16 Target Price: MYR1.15 Recommendation: Buy 1Q16 results in line 1Q16 earnings were within expectations. The strong YoY net profit growth was mainly driven by Platinum Sentral. We maintain our earnings forecasts and DCF-based TP of MYR1.15. Our BUY recommendation is premised on an expected major earnings boost from the impending acquisition of Menara Shell. FYE Dec (MYR m) FY14A FY15A FY16E FY17E Revenue 70.2 115.2 124.4 128.9 Net property income 53.3 90.3 100.3 103.5 Distributable income 34.2 54.0 56.9 60.6 DPU (sen) 7.5 6.9 7.0 7.4 DPU growth (%) 0.0 (8.1) 0.8 6.5 Price/DPU(x) 15.4 16.7 16.6 15.6 P/BV (x) 0.8 0.8 0.8 0.8 DPU yield (%) 6.5 6.0 6.0 6.4 ROAE (%) 6.4 7.5 6.3 6.7 ROAA (%) 4.0 4.3 3.5 3.7 Debt/Assets (x) 0.4 0.4 0.4 0.4 Kevin Wong    (603) 2082 6824    kevin.wong@maybank-ib.com

SECTOR RESEARCH MY: Malaysia Banking Sector Note by Desmond Ch'ng Loan growth decelerates Industry loan growth slipped 1-ppt to just 6.4% YoY in Mar 2016. Deposits, meanwhile, contracted 0.9% YoY versus +0.7% YoY in Feb 2016. The risk to our 2016 industry loan growth forecast of 6.5% (+7.9% in 2015) is to the downside if current trends persist. NEUTRAL maintained on the sector - BUY AFG, HL Bank and HLFG, SELL AMMB and CIMB. Desmond Ch'ng    (603) 2297 8680    desmond.chng@maybank-ib.com

MACRO RESEARCH MY: Money Supply, March 2016 Economics Research by Suhaimi Ilias Moderated as deposits fall, loans slow Money supply (M3) growth moderated in March 2016 to +0.9% YoY (Feb 2016: +2.7% YoY) amid fall in total deposits and slower loans growth. The 3-months interbank rate continued to ease since the SRR was cut by 50bps to 3.50% on 1 Feb 2016. Suhaimi Ilias    (603) 2297 8682    suhaimi_ilias@maybank-ib.com Zamros Dzulkafli    (603) 2082 6818    zamros.d@maybank-ib.com

NEWS Outside Malaysia: U.S: Consumer loan demand higher in 1Q 2016, Fed survey finds. U.S. consumers sought loans in the first quarter even as demand from medium and large companies weakened, the Federal Reserve said. Banks reported stronger demand from households for auto loans and other types of borrowing, according to the Fed’s Senior Loan Officer Opinion Survey for April published. Some said that lending terms on credit cards and other consumer loans eased, while standards for car loans remained basically unchanged. (Source: Bloomberg) U.S: Fed survey finds banks tightening lending to energy firms. Banks are tightening lending policies on companies in the energy sector and restructuring loans, the Federal Reserve found in a survey released May 2. In its quarterly report for 1Q 2016 bank lending practices, the Fed included responses by lenders to special questions about credit to firms in the oil and natural gas drilling or extraction sector. (Source: Bloomberg) E.U: Euro-Area manufacturing growing at `anemic' pace, Markit says. Euro-area manufacturing growth was little changed last month as stronger readings in Germany, Italy and Spain were offset by contraction in France. The gauge rose to 51.7 from 51.6 in March, above the 50 level that divides expansion from contraction and a provisional reading of 51.5. (Source: Bloomberg) Other News: Felda Global Ventures: To withdraw RSPO certificates. Felda Group made the request for withdrawal of RSPO certificates for “58 complexes located throughout Malaysia.” The 58 complexes refer to the 58 palm oil mills within the group that have been RSPO certified. Typically between five to eight estates supply fresh fruit bunch (FFB) to each mill. Felda Group is currently addressing all sustainability issues along the supply chain. This exercise allows a more inclusive certification between commercially managed plantations by FGV and Felda smallholders. The withdrawal would take effect today. (Source: The Edge Financial Daily) Astral Asia: Looking to boost land bank. Astral Asia plans to increase land bank as it expects more investors and companies to cash out from the palm oil industry. Astral has already scouted a potential acquisition in Sarawak of about 35,000acres (14,164ha) and is deliberating on the viability of the project owing to its terrain and soil condition. Astral currently sells its fresh fruit bunch to local palm oil mills and transporters. If it gets to increase its land bank, it will have to venture into the downstream palm oil business. (Source: The Edge Financial Daily)

EPICENTRE - Islamic Finance Technology & Innovation

April 2016 / Rejab 1437H Technological advancement in finance provides better and faster access whilst providing newer financial transaction options. Currently, through internet and mobile banking, customers are able to execute financial and non-financial transactions from any location. As Islamic finance progresses, technology is becoming a key enabler for future business. OTHER HIGHLIGHTS: Visa & AIBIM on the Lookout for Fintech Startups Visa and the Association of Islamic Banking Institutions Malaysia (AIBIM) have partnered to launch the ASEAN Fintech Challenge in conjunction with the Global Islamic Finance Forum 2016 (GIFF) from 10th to 12th May in Kuala Lumpur. GIFF presents a great opportunity for fintech startups to showcase their offerings for Islamic finance READ MORE HERE Shariah Compliant Crowdfunding at Kuala Lumpur’s Global Islamic Finance Forum EthisCrowd.com, a Shariah compliant crowdfunding platform, aims to raise up to S$1 million in real estate crowdfunding from senior executives and delegates present at the Global Islamic Finance Forum (GIFF) 5.0 in Kuala Lumpur, 10 to 12 May 2016. The forum, in its fifth iteration, is organised by the Association of Islamic Banking Institutions Malaysia (AIBIM), and is themed “Dream Big, Grow Beyond”. READ MORE HERE Launch of RHB Islamic ASEAN Megatrend Fund RHB Islamic International Asset Management  launched the RHB Islamic ASEAN Megatrend Fund. The Fund is set to complement the government’s efforts in developing and growing the Islamic Finance marketplace with the aspiration to position Malaysia as a key player. READ MORE HERE Please log on to www.mifc.com or call +603 26923481 for more information. Copyright © 2016 Bank Negara Malaysia. All rights reserved. DISCLAIMER: The copyright and any other rights in the selection, coordination, arrangement and enhancement of the information in this electronic newsletter are owned by Bank Negara Malaysia. No part of this electronic newsletter may be modified, reproduced or published without prior permission in writing from Bank Negara Malaysia and the relevant copyright owner. Although every effort has been made to ensure the timeliness, accuracy, adequacy and completeness of this electronic newsletter, Bank Negara Malaysia accepts no responsibility or liability for errors or omissions, if any. The information contained in this electronic newsletter is only up-to-date at the time of transmission, and is not exhaustive and may be updated from time to time on the website: www.mifc.com. Bank Negara Malaysia shall not be liable for loss or damage caused by viruses transmitted by this electronic newsletter. Bank Negara Malaysia is not responsible for any unauthorised changes made to the information in this electronic newsletter or for the effect of such changes. Bank Negara Malaysia appreciates any feedback or suggestions for improvement.

First Gulf Bank PJSC Fundamentally Sound and Expected to Stay Afloat Amid Macro Headwinds

29 April 2016

Credit Brief

First Gulf Bank PJSC

Fundamentally Sound and Expected to Stay Afloat Amid Macro Headwinds

Key Credit Highlights                                                                     

¨      Softer economic outlook from weakness in oil prices. The UAE economy is expected to grow 3.2% in 2016 if compared to 3.1% in 2015 and 4.6% in 2014, based on Moody’s estimates, reflecting slower global growth and a prolonged period of lower oil prices. FGB’s loan growth fell to 7.2% in 2015 from 11.2% in 2014.   

¨      Strong profitability coupled with operational efficiency. FGB reported a 6% YoY increase in net profit to AED6.0bn in 2015, mainly attributed to the one off revaluation gain of AED549m from investment properties. The bank’s net interest margin (NIM) declined to 3.3% in 2015 from 3.6% in 2014 (Chart 1) but is still higher than industry average of 2.8% which can also be attributed to its low cost-to-income ratio at 20.6% (vs average 36%). In addition, the bank has a fairly diversified loan book across different economic sectors (Chart 2) — where over 40% of total exposure is to the retail sector and only 11.4% is exposed to the government, public sector and energy; hence, exposure to risky sectors is manageable, in our opinion.

¨      Asset quality under pressure from rising NPLs. FGB’s loan loss coverage ratio decreased to 103% in 2015 from 127% in 2014, and non-performing loans (NPLs) ratio increased to 2.8% from 2.5%. Asset quality has been weakening at a moderate pace since 1Q15 (Chart 3), but it is still strong when compared with the c.5% NPLs and c.90% coverage among UAE peers. In addition, we noted that FGB is exposed to concentration risk with the top 5 depositors accounting for about 28% of the bank’s deposit base in 2015 (2014: 29%).

¨      Relatively strong capitalisation but pressured by funding constraints. FGB has relatively strong capitalisation metrics with Tier 1 and total capital ratios remaining stable at 16.3% and 17.5% respectively, which are well above the regulatory requirements of 8% and 12%. The bank’s loan-to-deposit ratio increased to 105.1% in 2015 from 98.9% in 2014 and 92.0% in 2013 (Chart 4), and is likely to face upward pressure due to its significant slow deposit growth of 4.2% in 2015 (2014: 7.5%; 2013: 16.7%). This can be largely attributed to the concentration to government and public sector exposures (31% of total deposits) which should contain the impact of a sharp fall in prices.

¨      High likelihood of government support. FGB’s systematic importance as the 3^rd largest bank, with about 9% of market share implies that the government will likely take measures to reduce its probability of default. This was shown in the past where the government converted the federal deposits into Tier 2 capital and recapitalized USD544.5m in FGB in 2009. However, FGB’s shareholders are predominantly UAE companies and individuals which may moderate the probability of support if compared to other Abu Dhabi banks that have strong institutional ownership by the Abu Dhabi Investment Council.