INVESTMENT HIGHLIGHTS

• Results were within ours and consensus’ expectations

• Bank Islam and Takaful Malaysia continue to post strong results

• House financing led asset growth

• Slight uptick in GIF ratio but asset quality remained healthy

• No change to earnings forecast

• We maintain our BUY recommendation with an adjusted TP of RM5.15 (from RM5.00)

Results were as expected. The Group net profit for 1QFY18 came in within ours and consensus' expectations. Its PAZTAMI of RM172.1m was 25.7% and 26.2% of respective full year estimates.

Bank Islam and Takaful Malaysia posted strong results. Bank Islam Group's PBZT grew +7.9%yoy to RM207.2m. It was supported by the strong operating results at Bank Islam which grew +14.7%yoy to RM241.2m. This was despite higher provisions of RM21.2m (from RM8.8m in 1QFY17). Meanwhile, Takaful Malaysia Group saw its PBZT rising +18.2%yoy to RM85.8m on higher Wakalah fee income.

Housing financing led gross financing growth. Gross financing grew robustly at +6.7%yoy to RM43.1b. This was mainly contributed by house financing growth of +14.2%yoy to RM16.6b.

Slight uptick in GIF ratio. Gross impaired financing ratio went up by +6bps qoq to 0.99%. Corporate and commercial segment was the main cause for the slight deterioration in asset quality. The GIF ratio for this segment went up by +21bps qoq to 1.91%.

Deposits growth still supporting asset growth. Total deposits rose +7.8%yoy to RM46.6b.

Impact on earnings. We maintain our estimates as the result was within expectations.

Earnings growth trajectory seems to be sustainable. We continue to like the Group given that it had been able to maintain its earnings growth trajectory. Bank Islam continues to gain strong momentum in terms of asset growth, while keeping a solid asset quality. In addition, Takaful Malaysia seems to be able to solidify its position as the leading Shariah compliant insurance provider.

Recommendation. We are maintaining our BUY call for the stock. We are adjusting our TP to RM5.15 (from RM5.00) as we roll over our valuation to FY19. Our TP is based on pegging our FY19 BVPS to 1.6x PBV.

Source: MIDF Research - 31 May 2018