• Expected to be on track to meet FY17 targets

• Possibility of NIM coming in better lead by Indonesia

• Loans growth target achievable in Malaysia but difficult elsewhere. However, this is partly deliberate

• Asset quality improving but not fast enough

• Overall, no major surprises

• No change to our forecasts for now

• With no downside or upside surprises, we are maintaining our NEUTRAL call with unchanged TP of RM7.10 pegging the stock to 1.3x FY18 Price-to-Book multiple

Key takeaways. We met with the Group’s CFO yesterday for an analyst briefing. Below we the key takeaways that we gathered from the meeting: (1) On track to meet FY targets except possibly loans growth. (2) There is a possibility that NIM will come in better than guided. (3) Asset quality in Indonesia is not improving as fast as expected. (4) No major upside nor downside surprises expected in 2QFY17 or the rest of the year.

It may be difficult to achieve loans growth target. We understand that the Group can achieve the loans growth target in Malaysia with mortgage as one of the main contributor. In fact, the Group managed to reprice it higher without severely affecting demand. For Thailand and Indonesia, the management believe that it will be difficult. However, this is partly deliberate as the Group continues to shrink its exposure in certain segments, for example auto and SMEs in Indonesia. We like the fact that management are not compelled to grow loans just to meet its target, as we would like to see asset quality improve further.

Indonesia to lead NIM. Management indicated that it has not seen any undue competition for deposits, resulting in rates holding steady. As such, the management believe that NIM may come in better than earlier guided. This will be due to the improvement in NIM in Indonesia, while in Malaysia there will be slight contraction which is structural in nature. Recall, NIM in Indonesia improved by +40bps yoy to 5.87% despite tepid loans growth of +2.8%yoy. We believe that this will be key for topline growth this year, and moderate any weakness in NOII should there be any.

Asset quality not improving fast enough. We have seen asset quality improving in Indonesia and Thailand. However, we understand that the improvement in Indonesia are not at the expected pace. Indeed, we believe that asset quality remains heightened in these two markets. We are not concern on asset quality in Malaysia as we believe that structurally it is sound. Nevertheless, management indicated that it does not expect any further deterioration in asset quality.

Provisions will normalise. While provisions will remain heightened, management does not expect any major issue. In fact, provisions might normalise back to the guidance level of 60-65bps. For example, we might not see the level of write backs seen in Malaysia in 1QFY17. Also, we understand that there will be seasonal spike due to the Hari Raya festivities in Malaysia and Indonesia.

No major surprises expected. Overall, business seems to be tracking along as expected for the Group. There are pockets of concerns but we believe that this is manageable. Management expect that it will be able to meet the target set out for FY17.

FORECAST

We make no changes to our forecast pending 2QFY17 result for the Group.

VALUATION AND RECOMMENDATION

We are maintaining our NEUTRAL recommendation considering of the expectation that there will be no upside nor downside surprises in 2QFY17 result or for the rest of the year. We believe that all the positives such as improved credit cost and better NIM has already been priced in. We also keep unchanged our TP at RM7.10 which is based on pegging its FY18 BVPS to PBV multiple of 1.3x.

Source: MIDF Research - 3 Aug 2017