INVESTMENT HIGHLIGHTS

• Net profit within ours and consensus’ expectations

• NII robust with uptick of NIM from better funding cost management, and steady loans growth.

• Moderated the fall in NOII from lower forex and investment income.

• CASA ratio improved further.

• Uptick in CI but still amongst the lowest in industry.

• Asset quality remains robust.

• No change to FY17 forecast.

• Maintain BUY with an adjusted TP of RM23.30 (previously RM22.60) as we roll over our valuation to FY18, pegging the BVPS to its 5 year historical PB multiple of 2.4x.

Net profit came within expectations. The 1QFY17 net profit for the Group came within ours and consensus’ expectations at 23.4% and 23.7% of respective full year estimates. The net profit grew +1.5%yoy on the back of strong NII and Islamic banking income growth, which moderated the decline in NOII and higher OPEX.

Second consecutive quarter of improved NIM. The NII growth was due to uptick in NIM and steady loans growth. NIM improved for the second consecutive quarter to come in at 2.31% (+11bps yoy and +9bps qoq). The NIM uptick was due to better management of funding cost as CASA grew +12.3%yoy vs. +8.4%yoy growth in fixed deposit. Resultantly, CASA ratio was better at 25.5% from 23.4% as at 1QFY16.

Steady loans growth also contributor to strong NII. Gross loans grew +7.0%yoy to RM296.6b. The strong loans growth came mainly from housing loans which grew +9.8%yoy to RM97.2b. It was also due to higher corporate loans which grew +10.0%yoy to RM44.5b.

Unit trust income moderated fall in NOII. Lower forex income (- 46.0%yoy to RM79.0m) and investment income (-90.2%yoy to RM4.0m) was the main contributor for the -13.1%yoy decline in NOII. Nevertheless, the impact was moderated by strong growth in unit trust income (+11.6%yoy to RM211.5m).

Uptick in CI but still amongst lowest in industry. OPEX grew +12.5%yoy due to higher personnel cost which grew +10.2%yoy to RM617.6m. This resulted in an uptick in CI to 34.3% from 31.5% in 1QFY16. However, this was still amongst the lowest in the industry.

Good asset quality despite robust loans growth. Asset quality remains strong with GIL ratio improving -2bps qoq to 0.49%. This included improvement in GIL ratio of residential properties segment. Overall, we are not concern with the Group’s asset quality given its GIL ratio is amongst the lowest in the industry.

Comparison with FY17 targets. Recall, the Group guided its FY17 targets of: i) ROE of 14-15%, ii) Total capital ratio of >13%, iii) GIL ratio < 1%, iv) CI ratio of 33.0-34.0%, v) Loans growth of 6-7% and vi) Deposit growth of 5- 6%. Thus far, it appear that the Group will be able to achieve its FY17 target. We believe that these targets are achievable on the fact that we expect that there will be an improvement to Malaysia’s GDP in FY17 and what we have seen with the Group’s pursuit of operational excellence as well as prudent credit and financial management.

FORECASTS

We maintain our FY17 forecast for now.

VALUATION AND RECOMMENDATION

We continue to like the Group’s ability to achieve a robust loans growth whilst maintaining its asset quality. We also like the fact that the Group was able to manage its funding cost well which led to improvement in NIM. As a result, we expect that any NIM compression will continue to be manageable for the Group. With the expectations of sustainable profitability, we maintain BUY for the stock. We are adjusting our TP to RM23.30 (previously RM22.60) as we roll over our valuation to FY18. Our TP is based on pegging PBV to 2.4x which is its 5 year historical PB multiple.

Source: MIDF Research - 21 Apr 2017