Investment Highlights

• Earnings within expectations, with robust NII growth from better NIM stemming from portfolio rebalancing

• Loans growth decent

• Credit cost normalising but there were still writebacks

• Asset quality stable but wholesale segment a slight concern

• No change to forecast. Interim dividend of 5 sen

• Maintain NEUTRAL with adjusted TP of RM4.35 (from RM4.50)

Within expectations. The Group posted 1HFY18 earnings of RM659.7m which was within ours and consensus’ expectations at 46.9% and 47.9% of respective full year estimates. Net profit fell - 2.4%yoy due to lower write backs, lower NOII and higher OPEX. However, we must note that we were pleased with the lower writebacks as this could signal the normalising of credit cost albeit at a slower pace than we prefer. This also means that earnings will have to depend on operational efficiencies in the future.

Good NII growth but could not moderate NOII decline. NII grew solidly at +8.6%yoy underpinned by pick up of NIM. For 1HFY18, NIM expanded +6bps yoy due to the portfolio rebalancing which increased the mix of higher margin products. It was also due to funding cost management. Nevertheless, the NII growth could not compensate for the NOII decline or the OPEX increase. We recognize that NOII decline was due to the absence of one-off large transaction that was seen last year.

OPEX increase due investment on building blocks. OPEX rose +5.3%yoy to RM1.12b due to higher personnel cost. This cost went up +8.5%yoy to RM617.1m. However, we are not too concern by this uptick in OPEX as it was due to investment relating to building the capability of its Business Banking division.

Loans growth decent. Gross loans grew at decent +6.6%yoy to RM93.0b. Main contributor was its target segment of mortgage (+22.1%yoy to RM24.1b) and SME loans (+19.2%yoy to RM19.2b).

Asset quality stable. GIL ratio seems stabilising at 1.88%, which the same as the previous quarter. However, we are concern on the Group’s RM7.3b exposure to commercial real estate sector as only 50% were classified as strong by the Group’s internal risk grades.

Source: MIDF Research - 29 Nov 2017