INVESTMENT HIGHLIGHTS

• Price has been on a downtrend since 30 April 2018.

• However, fundamentals of the Group and earnings potential remain intact.

• Hence, presents an opportunity to accumulate and take advantage of potential relief rally after GE14.

• No change to our forecasts.

• Reiterate BUY with unchanged TP of RM7.80 pegging the stock to 1.4x FY18 Price-to-Book multiple.

Profit taking affecting price? The share price of the Group fell sharply by -3.29% last Friday. In fact, it had been on a downtrend since 30 April 2018, retreating -6.6% for the period. We believe that the share price retracement could be due to profit taking activities.

Fundamental and forward earnings potential intact. In our opinion, the share price retracement presents an excellent opportunity to accumulate on the stock. This is due to the fact that we believe that the fundamentals of the Group are still intact with solid earnings potential for FY18 and FY19. In addition, we opine that there is an investment case in the medium term as well.

Loans growth expected to be better, while NIM compression expected to be benign. One of the factors that we believe will drive earnings growth is our expectations of better loans growth for FY18. Recall, in FY17, Group gross loans growth grew only +0.2%yoy due to its overseas market. Hence, even with minor recoveries will translate to more solid loans growth. For FY18, we are expecting a Group gross loans growth of +6.0%yoy. In addition, we expect NIM compression to be benign with at most -2bps from last year level. Both of these will drive FY18 top line growth.

OPEX to be well maintained. With respect to cost, we expect it to be well maintained with CI ratio at circa the 50-52% level. While there may be some further cost consolidation, this will be mitigate by the investments needed to be made for its digital offerings, which will be funded the one-off gains from the divestments.

Asset quality to continue to improve. We expect that asset quality will continue to improve in FY18. This is especially with improvements made in Indonesia and Thailand. For example, Gross NPL fell -24bps qoq and -40bps yoy to 3.51% in Indonesia as at 1QFY18.

Source: MIDF Research - 7 May 2018