Bumiputra-Commerce Holdings - BUY - 12 May 2008

Bumiputra-Commerce Holdings - 1Q08 above expectations (Results Note)
Price: RM9.90

Target Price: RM12.60

Recommendation: BUY


· 1Q08 net profit of RM535.3m was 21% lower than our forecast and consensus of RM2,710.6m and RM2,723.0m respectively. The net profit was below largely due to weaker IB and Treasury contribution given the weaker than expected capital market and equity market conditions. Consumer banking performed surprising very strong with 22% of pretax profit compared to 14% in 4Q07.

· YoY, 1Q08 net profit fell 13% as 1Q07 net profit included RM86.8m of exceptional gain from the sale of asset management and unit trust companies. Excluding the gain, 1Q08 was 1.3% higher where the sharp improvement in consumer banking compensated for the lower contributions from IB and treasury.

· QoQ, 1Q08 net profit 10.2% higher as 4Q07 income tax rate was 32% compared with 24% in 1Q08. 4Q07 higher income tax expenses came from non-deductible expenses. At PBT level, 1Q08 pretax profit was 1.4% higher on the back of RM70m gain from sale of 7m Sime Darby shares.

· Possible sale of another 21m Sime Darby shares to bolster any shortfall in net profit. Management is positive that the equity and capital market will pick up for the rest of the year. Already more foreign companies are looking to raise bonds in Malaysia despite US Fed fund rate being cut to 2.0%, availability of funds is limited as banks are still hurting from write downs on sub-prime losses.

· Efforts on consumer banking paying off. YoY, gross consumer loans was up 6.2% with mortgages growing at a staggering 23.2%. Deliberate winding down of HP saw it fall by 13.2% YoY but strong growth in credit cards at about 130,000 to 170,000 cards per month for 1Q08 also resulted in 32.1% growth in credit cards debt outstanding. Growing retail deposit 20% YoY is the right move o lower borrowing cost. Cost to income ratio was lower at 52.7%.

· Management expect 2H08 to be better. 2H08 is expected to deliver 60% while 1H08 to contribute 40%. We are maintaining our forecast. Maintain BUY with target price to RM12.60 using 2.8x P/BV.





KENANGA INVESTMENT BANK BERHAD (15678-H)