Results in line, with earnings underpinned by strong loans and normalized NIM. Asset quality remains strong as ever coupled with a resilient BOCD. Although keeping our earnings estimates unchanged, we subscribe to a lower PBV of 1.16x from 1.33x on concerns of lower contribution from BOCD. Hence, TP is lowered to RM16.45 but OUTPERFORM call maintained given undemanding valuations. In line. 1HFY20 CNP of RM1,390m is in line, accounting for both our and market estimates at 52/51%. An interim DPS of 16.0 sen (1H19: 16.0 sen) was declared (in line).

Strong loans. YoY, CNP of RM1.39b was flattish due to impairment allowances of RM12.1m (vs 1HFY19: recoveries/write-backs of RM38.7m). Top-line rebounded by 3% on account of better NII and Islamic Income at +2% and +18%, respectively. NOII fell 5% dragged by lower contribution from forex (57% to RM33m) and absence of one off divestment gain (1HFY19: RM90m). NII and Islamic Income was bolstered by stronger loans (+7%) and NIM (+12bps) on account of repricing of deposits. Its 18%-associate BOCD continued to be resilient contributing 18% of PBT (YOY, BOCD’s FY19 PAT growth registered at +19% with assets growth at +13%). Asset quality continued to be healthy at 0.84% with credit charge at 0.02%.

QoQ, saw moderation with CNP slowing by 6ppt to +2% as top-line moderated by 2ppt to +2% dragged by falling NOII (-3%). Loans improved 110bps to +2% supported by NIM enhancement of +7bps. BOCD continued to be stellar with contribution posting +15% uptick to RM167m. Asset quality saw slight deterioration as GIL chalked 3bps uptick to 0.84% with credit charge at 0.06% (vs 1H19: 3bps credit recoveries).

Management revised its guidance for FY20 with loans at 6-6.5% (from 5-6%) and ROE at 10-10.5% (from 10.5-11%) as fee-based contribution is expected to be lower. Loans are expected to be driven by retail given the accommodative interest rates with NIM expected to be manageable (Jan 2020 OPR cut, shaving 2-3bps in NIM). Its loan exposure to China-related business is at RM2b and management guided for a minimal impact with BOCD yet to show significant downturn.

Earnings maintained. We resists in making changes to our FY20E/FY21E earnings of RM2.7b/RM2.8b as we feel our unchanged assumptions are conservative enough; (i) loans growth at+5.6%/6%, (ii) CIR at 43% for both FYs, (iii) NIM at -4bps/-3bps, (iv) credit charge at 9%/13bps, and (v) BOCD growth of ~7% for both FYs.

TP lowered. We reduced our TP to RM16.45 (from RM18.90) based on a FY21E PBV of 1.16x (from 1.33x previously) implying a 1SD below mean. We feel this is justified given our concerns of a much slower contribution from BOCD on account of the current pandemic. We, however, maintain OUTPERFROM as valuations are still undemanding.

Key risks to our forecasts are: (i) steeper margin squeeze, (ii) slower than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, and (iv) weaker-than expected contribution from BOCD

Source: Kenanga Research - 27 Feb 2020