Results

• Results in line… AFG’s 1QFY18 results were within expectation with net profit of RM135m (+1.9% YoY, +15% QoQ), making up 27% and 26.4% of HLIB and consensus

estimates respectively. Deviations

• None

Dividend

• None.

Highlights

• QoQ… 1Q18 net profit grew +15% to RM135m, driven by higher NOII to RM91.2m (+17%). This was however offset by a spike in loan-loss-provision (LLP) by +9.4% to RM30.2m mainly in the consumer segment.
• YoY… Net profit was flattish at RM135m (+1.9%), as the growth in both NII (+5.7%) and NOII (+9.7%) was offset by higher opex of RM176m (+4.4%) and LLP (+66.5%).
• Loans… Growth in gross loans moderated further to +1.3% YoY (-0.9% QoQ), chiefly due to decline in lower RAR loans (-3% YoY). Meanwhile, higher RAR loans soared by +11.3% YoY, owing to expansion in SME and commercial (+12% YoY) and unsecured consumer lending (+8.3% YoY).
• Deposits… Deposits moderated by -1% YoY and -1.4% QoQ to RM44bn affected by ongoing effort to withdraw expensive deposits. Nevertheless, CASA grew by +5.8% YoY with its composition to total deposits rose to 35.3% (33.1% in 1Q17). Loan-to-deposit ratio increased marginally to 87.4%
• NIM… NIM improved +2bps to 2.32% in 1Q18 driven by expansion in higher RAR loans and CASA growth. Management expects NIM to expand around 3-5bps in FY18 due to focus on higher RAR loans.
• Opex…we understand that the RM90m investment has yet to kick off in full blown, leading opex to rise at manageable level of +4.3% YoY (-2.6% QoQ). Cost to income ratio improved to 45.6% vs. 49.3% in 4Q17. AFG continued to post positive JAWS.
• Asset quality… Absolute NPL declined by -3% YoY, but rose +11% QoQ, leading GIL to 1.11% vs. 1% in 4Q17. Credit cost was at 7bps due to personal financing portfolio.

Risks

• Somber reception on new products launched and additional investment to fine-tune business.

Forecasts

• Unchanged.

Rating

HOLD (↔)

• Judging from initial response on its new products, we believe AFG will have any issue in meeting FY18 loan growth target, thus the new loan booked will offset the investment incurred to introduce these products.

Valuation

• Maintain our TP at RM4.15. TP is based on GGM i) ROE of 9% ii) WACC 8.2%. Maintain HOLD rating.

Source: Hong Leong Investment Bank Research - 30 Aug 2017