9MFY19 results accounted for 83%/81% of our/consensus estimates but we deemed it in line as the positive variance coming from stronger financing (3Q). Forward Earnings unchanged (as we expect a moderate Quarter); hence, TP of RM4.80 and OUTPERFORM call are maintained. In Line. 9M19 CNP of RM606m accountings for 83%/81% of our/consensus estimates. The positive deviation is attributed to higher financing growth (+9% vs. guidance estimate of +7%) coupled with a stable Net Financing Margin (NFM). A DPS of 16.0 sen was declared (in line).

Loans expansion driven by Households. YoY, 9MFY19 CNP (+16%) was driven by a strong top-line (+14% to RM2,389m) but offset by steeper opex and higher impairment allowances (+11% and +40%, respectively, to RM1,257m and RM87m). As usual, Takaful income was the main revenue driver (+31%) contributing 34% of top-line. Higher loans growth at 9% (above guidance/expectation) with stable NFM (due to revision of its base financing rate by 13bps in Dec 2018 mitigated the impact of the May 2019 OPR cut) which saw income from investment of depositors’ funds growing at +>9%. Accommodative interest rates pushed consumer financing (+7%) followed by Commercial (+3%) and Corporate (+34% to RM6b). Mortgage and PF continued to be resilient at +9% and +7%, respectively. Asset quality saw GIL stronger by 14bps to 1.11%; uptick mostly coming from commercial but Household was stable at 0.5%. The higher impairments saw higher credit charge of 24bps (vs. guidance estimation of 19/20bps). On a positive note, credit recovery continued to be resilient at 22bps, offsetting gross credit charge.

QoQ, 3QFY19 CNP expanded (+7%) as top-line rebounded (+5%) to RM810m offset by higher opex (+5%) and impairments (+15%). Top line rebounded as Takaful income rebounded 13% as well as income from investment of depositors’ funds at +>2% (underpinned by strong loans – 310bps to +4% - strongest ever since 1QFY18) and lower NFM compression (1bps vs 2Q19: 8bps on deposits re-pricing). Mortgage, PF and Commercial/Corporate financing was at +2%, +3% and +13%, respectively. GIL saw a 8bps improvement to 1.11% mostly coming from commercial and Households

Loan target maintained. It is not surprising to see the improvement in financing coming in 3Q as we had expected it to be aggressive in the loan space with its 50/50 split in contribution from HH/PF recalibrated to 60/40 in light of the economic uncertainties. Mitigating NFM compression from the competitive asset pricing will come from further build-up in CASA and IA as competition from FDs is nullified with NSFR already complied. We resist in changing our financing assumptions as we expect management to maintain its loan target growth of 7-8% on account of maintaining asset quality. No change on Takaful’s contribution as we expect its 4QFY19 to be softer.

No change in our FY19E/FY20E assumptions; (i) NFM at -5/-2 bps, (ii) financing at +7%/+8%, (iii) CIR at 55%/53%, and (iv) credit costs at 20/19 bps. Maintain earnings estimates at RM734m/RM834m for FY19/FY20.

TP maintained with undemanding valuations. We maintained TP at RM4.80, ascribing an unchanged FY20E target PBV of 1.5x implying 0.5SD below mean). We feel this is justified given that the stock has been trading around 0.5SD-1.5SD below mean in the last 12 months on risk concerns from post-restructuring. We do not feel that asset quality is a concern as the bank have always been prudent and selective in financing growth; hence, the lower target ratio from the high single digits and low teens seen in previous years. Valuations are undemanding, reiterate OUTPERFORM.

Source: Kenanga Research - 2 Dec 2019