INVESTMENT HIGHLIGHTS

• Optimistic with new direction

• Asset quality intact due to de-risking of loans book

• Earnings to rebound in FY19

• Already reprimanded for past dealings

• No change to forecast

• Maintain TRADING BUY with unchanged TP of RM4.30

Reaction to GE14. We participated in a conference call yesterday with the management on the Group's reaction to the concluded 14th General Election (GE14). Amongst the topics discussed were their outlooks following the election result, asset quality and past issue relating to 1MDB.

Optimistic on the country's new direction. The management indicated that it is optimistic that the country will continue on its growth trajectory. Any headwinds will be from the external sector due to the ongoing geopolitical concerns.

No major impact to asset quality. According to the management, it had conducted scenario simulation on the outcome of GE14 including the possibility of a change in government and stress testing the Group's asset quality. Subsequently, it found no major impact to the quality of its assets. This was due to the de-risking of its exposure.

Ongoing recalibration of its business franchise. The Group is moving away from its more traditional segments, i.e. hire purchase and corporate loans. It will focus more on retail and SME segment to drive future growth. The positive impact including NIM improvement as evident by the 1.98% posted in 9MFY18 and management expect that it will be able to sustain around the 2% level. Besides this, the Group was also able to lower the risk coming from the surprised GE14 result. Management indicated that the construction and GLC segment make up 8% and 6% of the Group's loans book respectively.

Credit cost normalising. In fact, partly due to the de-risking of its loans book, credit cost appears to have started normalising as evident by the lower recoveries registered in 3QFY18. However, we understand that there will still be volatility in its credit cost due to its exposure in the corporate sector and in particular in real estate. As for FY19, we expect credit cost to come in between 40bps to 50bps.

Source: MIDF Research - 17 May 2018