INVESTMENT HIGHLIGHTS

• The 1HFY17 net profit of RM265.1m was within ours and consensus’ expectation

• Decent +3.3%yoy growth was due to double digit income growth from Islamic Banking operations

• NIM improved 5bp to 2.22% in 1HFY16 as Risk Adjusted Return strategy moderated impact from OPR cut

• Slight increase in OPEX but CI ratio improved by -4ppts to 46.5%

• Gross loans growth stabilized at +3.0%yoy to RM39.1b

• Customer deposit growth picked up to grow +4.9%yoy.

• Asset quality remained good

• Interim dividend 8.5 sen

• No change to our forecast

• Maintain NEUTRAL with an adjusted TP of RM4.05 (from RM4.00), rolling over valuation to FY18 BVPS, pegging the stock to PB multiple of 1.2x

Net profit for 1HFY17 within expectations. Net profit in 1HFY17 came in at RM265.1m was within expectations, coming in at 47.9% and 49.1% of ours and consensus’ FY17 estimate.

Net profit growth supported by decent PPOP. The 1HFY17 net profit grew +3.3%yoy on the back of decent PPOP expansion. PPOP came in at +2.7%yoy to RM387.1m supported by growth in income from Islamic Banking operations. For 2QFY17, net profit fell - 1.5%yoy to RM132.6m due to decrease in net income. However, this was moderated by Islamic banking income growth.

Islamic Banking operations moderated decline in NII and NOII. NII fell -1.1%yoy to RM416.3m due to NII contraction in 2QFY17, where it declined -4.2%yoy. This was due to impact of OPR cut where loan portfolio yield came down by -2bps yoy to 5.08%. NOII also declined in 2QFY17, by -16.0%yoy due to nonclient based NOII on lower treasury income from derivatives and forex. As a result, NOII fell -4.9%yoy to RM161.4m in 1HFY17. However, the NII and NOII decline was moderated by income from Islamic banking, whereby it grew +21.9%yoy to RM145.8m in 1HFY17. Accordingly, we believe that this had helped improved NIM by +5bps yoy to 2.22%.

Source: MIDF Research - 30 Nov 2016