12M18 set of results came in line with our/consensus expectations on account of lower impairment allowances. TP of RM2.60 and OUTPERFROM call maintained pending a briefing from management later today.

In line. 12M18 CNP of RM503m came slightly above expectations, accounting for 107%/108% of our/market estimates. No dividend was declared, as expected. This is because dividends are normally declared in Q3.

Note that the year–on-year (YoY) comparison is less meaningful as the group underwent a re-organization in October 2017.

Earnings flat. QoQ, CNP of RM144m was relatively mixed. While we saw an absence of large impairment allowances (as impairment allowance was recorded at RM0.1m), but top-line fell 9% to RM454m. Positively, Islamic Banking income improved marginally (+1%) to RM98m while both NII and NOII fell 2% and 21%, respectively. The stronger Islamic Banking Income is in line with its strategy of building its Islamic contribution to 40% of total assets by 2019.

However, loans growth was a dampener and stayed relatively flat but it still achieved +6.3% (within guidance and estimation) on YoY basis due to build-up in 2Q and 3Q. Compounding the weak fund-based income was NIM compression of 40bps (to 1.4%) due to funding costs as management shored up its deposits to comply with NSFR9. CIR continues to be on the high side at 65% (vs. industry’s 47%) as AFFIN continues with its transformation programme.

There was an improvement in asset quality as GIL fell 40bps to 2.4% and credit charge was flat. On a full-year basis, credit charge registered at 0.16%, which was within guidance (0.2% to 0.3%). We believe this was due to the resolving of a major account related to the real estate sector.

Forecast earnings unchanged. Our FY19E earnings are unchanged at RM560m pending a management briefing today.

TP and rating maintained. For now, we maintain our OUTPERFORM call (due to undemanding valuations) and TP of RM2.60 based on a blended FY19E PB/PE ratio of 0.5x/9.0x (unchanged) pending further updates from management. The PB ratio is on its 5-year mean with closer to a 1SD below, to reflect concerns on asset quality and domestic/external headwinds.

Risks to our call are: (i) higher-than-expected-margin squeeze, (ii) lower-than-expected loans/financing growth as well as (iii) worse-thanexpected-deterioration in asset quality.

Source: Kenanga Research - 1 Mar 2019