6M19 results came in line within expectations on account of write backs and gains on financial investments. TP of RM2.40 and OUTPERFORM call maintained pending a briefing this Friday.

In line. 6M19 CNP of RM293m came within expectations accounting for 55%/58% of our/market estimates. No dividend was declared, as expected as AFFIN only declares dividend once a year Q3.

As expected, NIM compressed. YoY, earnings improved tremendously (+36%) to RM293m as there was a writeback of RM36m (vs 6M18: credit loss of RM82m) with CIR flat at 63% as opex remained stable. Top-line was flat as both Islamic income and NII fell into negative territory (-<1% and -12%, respectively) while NOII surged +15% (due to gains from financial instruments (>+100% to RM132m). Loans fell below target (-0.4% vs guidance/estimation of 3-4%) coupled with compressed NIM (-39bps), pulled NII by 12%. The high compression was not a surprise given management’s target of +11% growth for deposits to comply with NSFR by end of FY19 (vs 6M19: +12%) and CASA ratio falling 2ppt to +14%. Asset quality was mixed with GIL at 3.5% (due to two lumpy accounts expected to be resolved by end of 2019 while a surprise was a credit recovery of 15bps (vs 6M18 credit loss of 33bps).

QoQ, earnings improved +14% to RM156m boosted by: (i) healthy top-line (>+5%), (ii) higher write-back (>+100%) to RM26m, and (iii) improved CIR by 2ppt to 62%. Top-line was boosted by improved performance of Islamic Income and NOII (+8% and +10%, respectively). NII fell 0.7% as loans fell 2% with NIM compression of 9bps. While GIL saw 18bps uptick to 3.5%, there was larger credit recovery of 22bps.

Earnings maintained for now pending a management’s briefing this Friday with unchanged assumptions for FY19E; (i) loans at ~3%, (ii) 10bps NIM compression, (iii) credit charge at 24bps, and (iv) CIR of <60% as we expect its high opex (due to its transformation initiatives) to taper by end of 2019.

TP and rating maintained. Our TP maintained at RM2.40 on a target PBV of 0.50x FY20- implying a 0.5SD below mean - to account for the uncertainties ahead.

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

Source: Kenanga Research - 28 Aug 2019