Results

• Results in line… AFG posted 2QFY18 net profit of RM122.8m (-7.4% YoY, -9% QoQ), bringing 1H18 net profit to RM257.8m (-2.7% YoY). This made up 50.3% and 51.3% of HLIB and consensus estimates, respectively.

Deviations

• None.

Dividend

• None.

Highlights

• QoQ… 2QFY18 net profit slid by -7.4% to RM122.8m weighed by lower NOII (-6.4%) and higher LLP (+11%). NOII was derailed by MTM, but was offset by net gains from investment securities. LLP was impacted from higher IA allowance (+27.3%)

• YoY… Net profit was derailed higher taxation rate of 27.8% as certain expenses were disallowed for tax purposes. On PPOP level, income grew satisfactorily at +5.9% due to expansion in both NII (+9.1%) and NOII (+10.8%) despite some pressure seen in opex by +13.6%.

• Loans… Loans dipped by -0.5% YoY to RM38.9bn on the back of lower RAR loan (-5.9% YoY). Nevertheless, ABMB continued its key focus on RAR loan, which rose decently by +11.8% YoY, supported by SME, commercial and consumer lending. ABMB also saw healthy pickup in its latest innovation of Alliance One Account which raked sales an average of RM132m/quarter since its introduction.

• CASA accelerated… Deposits rose +7.3% YoY mainly due to the rise in CASA. CASA composition stood healthily at 37.3% which is one of highest in the industry.

• Expenses on the high side… ABMB expenses rose due to transformation investment and commitment to spend RM90m in FY18. ABMB booked RM23.3m expenses under this exercise in 2QFY18 alone. Given this, ABMB’s opex is expected to remain on the high side for the rest of FY18. CTI weakened to 47.1% in 1H18.

• Credit cost trending higher… Rise in 2QFY18 credit cost (8bps annualized) doubled 1H18 credit cost to 16bps due to both CA and IA on the back of slightly higher recoveries. MFRS9… ABMB will start implementing MFRS9 on 1 st Apr 2019, impact on Day 1 to the group’s CET1 ratio would be around 0.6% (CET1 as at Sep-17 was 14.1%) and impact on provision is less than 25%.

Risks

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

Forecasts

• We trim our forecast by 0.8% and 0.6% in FY18 and FY19 as we impute lower loan growth of 4% from 5% as loan growth has been sluggish thus far. No change to FY20 forecast.

Rating

HOLD ( ↔ )

• Response on its products have been overwhelming with loan book is exceeding target. However, this has yet to translate into better loan growth as ABMB is focusing on the high RAR loans.

Valuation

• Lower our TP to RM4.00 , based on GGM i) COE of 11% ii) WACC 8.9%. Maintain HOLD rating.

Source: Hong Leong Investment Bank Research - 4 Dec 2017