Q2 2013 beat our S$835 million estimate by 6 per cent, but was in line with consensus. With H1 2013 forming 51 per cent of our FY2013 forecast, our numbers are unchanged. Strong loan growth (buoying net interest income) accounted for about a quarter of the beat and Treasury, the rest. Maintain "outperform" (target price: S$19.02), with catalysts expected from further earnings deliveries.
Our Gordon growth model target price (1.38 times CY2013 P/B) is intact. Investors are likely to look past the loss of the Danamon opportunity.
Loans rose an impressive 5 per cent q-o-q. Growth was tilted towards US-dollar loans (up 8.3 per cent q-o-q), but spread across the sectors. Margins slipped two basis points to 1.62 per cent but were flat over two quarters, because net income margins are bottoming.
Fee income was within expectations, with trade fees and broking doing well. Other income beat our expectations, partly because of a S$44 million net gain from the disposal of Hong Kong properties. Still, treasury income was above, being 49 per cent driven by customer flows.
Total revenue (flat q-o-q) was impressive, if one considers the market weakness in June. Net interest income and treasury were strong.
Overheads/provisions were higher than expected, but its good topline took care of these. Jaws narrowed as operating costs rose 3.7 per cent q-o-q. Pre-provision operating profit was still 21 per cent ahead.
Non-performing assets (NPA) were flat, but absolute NPAs rose 7 per cent (Singapore and South-east Asia in Q2); the credit cycle is clearly turning.
Provisioning levels were similar to Q1. Q2 return on equity was 10.9 per cent and Tier-1 capital adequacy ratio (12.9 per cent) was unchanged.
Hong Kong net profit was up 14 per cent q-o-q. Both NII (up 8 per cent q-o-q) and non-NII (up 13 per cent q-o-q) did well. Hong Kong net interest margins improved five basis points (to 1.6 per cent), now close to group levels. Cost and provisioning growth tracked revenue growth.
OUTPERFORM
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