INVESTMENT HIGHLIGHTS

• Above expectations on lower net impairment losses

• Robust operational growth with PPOP coming in at +5.1%yoy

• Income growth due to NOII and Islamic Banking income

• CI ratio elevated but improving, lower in 3QFY16 to 57.2%

• Momentum of overall gross loans growth stalled but solid in certain segments

• Liquidity improved while asset quality stable

• Adjusting our FY16 and FY17 forecast upwards by +18.0% and %10.6% respectively

• Interim dividend of 3.0 sen

• Upgrade to BUY with revised TP of RM2.50 (previously RM2.30) with PB multiple of 0.5x on FY17 BVPS

Net profit came in above expectation. The Group’s 9MFY16 net profit of RM392.6m was above our and consensus’ expectations coming in at 89.9% and 85.4% of respective full year estimates. The variance was due to the Group registering lower net impairment losses.

High 9MFY16 net profit growth due to lower provisions. The Group recorded a 9MFY16 net profit growth of +44.4%yoy largely due to lower provisions. The net impairment losses were lower -84.2%yoy to RM22.8m on lower individual allowance and higher write-backs. The high net profit growth was also due to robust PPOP growth.

Robust operational growth. PPOP for 9MFY16 grew +5.1%yoy to RM559.7m. This was attributed to the growth of +5.3%yoy to RM1.41b in total income. The total income growth was from higher NOII and Islamic Banking income where it registered a +7.4%yoy and +11.0%yoy expansion respectively. We were pleasantly surprised especially by the pace of Islamic Banking income growth, which came in above our expectations.

CI ratio remains elevated but improving. As a result of the total income growth, CI ratio was maintained at 60.2% level despite OPEX increasing by +5.3%yoy. This was one of our main concerns as we believe that it was still at an elevated level. However, we saw some improvement as the 3QFY16 CI ratio was lower by -2.6ppts yoy and - 3.1ppts qoq to 57.2%.

Source: MIDF Research - 1 Dec 2016