Investment Highlights

• Earnings below expectations on higher OPEX and elevated provisions.

• OPEX was due to voluntary separation scheme.

• Income performance was strong, supported by NOII and Islamic Banking.

• Robust gross loans and deposits growth.

• Asset quality deteriorated slightly but expected to normalise.

• No change to forecast for now pending briefing today.

• Maintain BUY with unchanged TP of RM3.30 PBV of 0.7x.

Earnings below expectations. The Group posted its 9MFY17 which was below ours and consensus' expectations at 58.4% and 60.8% of respective full year estimates. The variance was due to (i) higher OPEX as the Group embarked on a voluntary separation scheme (VSS) in 3QFY17, and (ii) higher than expected credit cost.

Net profit decline due to VSS. Net profit for 9MFY17 fell -12.9%yoy due to increased in OPEX of +27.4%yoy. The OPEX growth was mainly due to RM48m VSS cost in 3QFY17 and investment made for its transformation program. In addition, provisions were higher as there were CA write back in 3QFY16 and higher IA. We estimated that discounting the VSS cost, earnings would have fell -3.6%yoy instead.

Strong income growth moderated higher OPEX. Total income grew +16.8%yoy supported by expansion in Islamic Banking income and NOII. These grew +22.0%yoy and +37.1%yoy respectively. The rise in NOII was due to strong fee income growth which grew +37.1%yoy to RM486.7m. Of this, portfolio management income was notably solid, as it expanded +39.5%yoy to RM187.9m.

Provisions elevated at this moment. We estimated credit cost increased +14bps yoy to 0.34% for 9MFY17. IA grew +53.2%yoy to RM73.2m, which raised our concern as this could signal a deterioration of certain accounts. We understand that this could be a continuation of R&R in several accounts with majority in the property sector. Previously, management expect these accounts to return to performing. It is possible for the loans to be reclassified in the next 6 month. Hence, we expect that credit cost may normalised only in FY18.

Source: MIDF Research - 4 Dec 2017