Investment Highlights

• Earnings within expectations.

• Net profit growth was due robust NII expansion and solid loans growth.

• NIM improvement underpinned by CASA growth.

• Lower a provisions a booster.

• Asset quality was dragged by Singapore and Indonesia. But Malaysia had improved.

• Liquidity position well covered.

• No revision to FY17 but tweaked FY18 forecast.

• Maintain BUY with unchanged TP of RM10.30, based on PB multiple of 1.4x.

Earnings within expectations. The Group's 9MFY17 earnings was within expectations. Its net profit of RM5.39b was 74.3% and 76.1% of ours and consensus' full year estimates respectively.

Robust NII was main driver for net profit growth. The net profit growth of +23.0%yoy posted by the Group was attributable to robust NII growth of +11.7%yoy. The strong NII growth was due to the combination of solid NIM improvement of +13bps yoy and gross loans growth of +5.3%yoy to RM485.9b.

NIM improved on CASA growth. We were pleased that the Group was able to maintain the growth of its CASA franchise. CASA grew in all its home markets, at +5.6%yoy, +21.7%yoy and +2.3%yoy in local currency terms, in Malaysia, Singapore and Indonesia respectively. This led to overall Group CASA to grow +8.5%yoy to RM190.1b, improving its CASA ratio by 2.0ppts yoy to 36.8%. We believe this had led to the solid NIM improvement.

Mortgage and SME loans driver for loans growth. The Group saw loans growing in all its home market except for Community Financial Services (CFS) in Indonesia, where it fell -1.4%yoy to IDR94.5t. However, this was deliberate due to portfolio rebalancing. Otherwise, CFS in Malaysia and Singapore grew +4.8%yoy and +7.1%yoy to RM199.8b and SGD21.5b respectively. In Malaysia, mortgage was the main driver as it grew +7.6%yoy to RM79.0b. In addition, SME loans in Malaysia grew +19.0%yoy to RM14.3b.

Lower provisions a booster. Recall, the Group did a heavy proactive R&R program in FY16. As such, we noted there were lower CA and IA made at -22.6%yoy to RM845.1m and -11.7%yoy to RM1.38b respectively. This had provided a booster to earnings growth.

Source: MIDF Research - 4 Dec 2017