Bumiputra-Commerce Holdings – 1Q09 in line on the back of renew catalysts

Price: RM8.85
Target Price: RM10.30
Recommendation: BUY

· BCHB reported 1Q09 net profit of RM614m which was inline with our estimate of RM2250 (27%) and above consensus of RM1897m (32%). Exceptionally strong 1Q treasury & investment revenues of RM464m drove the majority of the beat to consensus. BCHB's Investment bank posted record quarterly revenues of RM809m driven by very strong treasury and investment divisions’ performance. Top line growth combined with a lower cost income ratio (53%) and smaller provisioning (RM352m) produced a solid 14% ROE for the quarter.

· We believe consumer banking continues provide stability to group earning. BCHB’s asset quality improved over the quarter which is heartening. Group NPL coverage increased to 84% with net NPL at a lowly 2.3%. Guidance on credit cost of 80bps was largely inline with our expectations.

· In several key aspects, we see the company showing greater resilience than its peers. Given that the bank has been less severely impacted than its global peers, we believe the market has priced in its weaker performance (after several earnings downgrade and profit warnings for the whole 2008). But investors should not lose sight of the fact that key operating and financial trends appear to be more resilient in 2QFY09, thanks to the strong capital market, volatility in forex market and steep yield curve environment.

· This also echo our view that non-interest income has bottomed out in 4QFY08 (see our report dated 24 Feb 2009 titled “Non-interest income bottoming out!”). Equities performance should remain robust providing for revival in BCHB corporate advisory and primary bond market activities.

· We raise our target price to RM10.30 and reiterate our BUY recommendation using a higher 1.8x P/BV multiple on FY10 BV of RM5.70, which premium to industry average of 1.4x. We believe that the premium over the industry P/BV average is justified due to BCHB’s earning visibility which has improved significantly over the past 6 months. In addition, renewed earnings momentun on forex trading, prime brokering and primary bond market could lift earnings above market consensus.