INVESTMENT HIGHLIGHTS

• Earnings with expectations

• Compare with AHB 1QFY17 result for better comparison

• Solid NOII growth

• Higher OPEX was within expectations

• There is still an investment case to be made

• Maintain BUY with adjusted TP of RM2.90 as we roll over our valuation to FY19

Net profit within expectations. The Group net profit in 1QFY18 came in at RM146.0m. This was within ours and consensus’ expectations given it were 24.8% and 27.8% of respective full year estimates. Net profit grew +61.8%yoy. However, this does not represent a comparable assessment. This is due to the fact that the Group have changed its composition following from the reorganization exercise.

Compare with AHB 1QFY17 result for better comparison A better comparison will be with Affin Holding Bhd (AHB), the previous group holding entity. Comparing the Group with AHB’s 1QFY18 result, net profit grew strongly by +18.5%yoy. This was due to strong Islamic banking income, NOII and write backs in quarter.

Solid NOII growth. NOII grew +6.2%yoy supported by higher fee income. Total fee income grew +34.7%yoy to RM128.6m. We opine this to be in line with the management’s effort to diversify its income.

Higher OPEX expected. OPEX grew +10.5%yoy but this was within our expectations. The increased OPEX was due to higher personnel cost and this was in relations to building the capacity of the Group for its transformation program.

Asset mix inching towards consumer. YTD gross loans grew 0.7%qoq to RM46.4b. More notably was the loan book composition. The Group have been shifting towards increasing the contribution from consumer segment. As at 1QFY18, consumer segment increased to 50.6% from 49.1% as at 1QFY17. Oppositely, corporate segment contribution reduced to 41.3% from 42.9%. Asset quality remains stable with GIL ratio at 2.54%.The bulk of the impaired loans comes from two accounts which management expect one account to be resolved by end of FY18.

There is still an investment case. We continue to be encouraged by the Group’s outlook. We believe that the Group is on the right track and we expect stronger result after completion of its transformation. Meanwhile its relatively small size allows it to be nimble to institute changes needed and will be able to be realised some of the benefits in the short term. We also maintain our view that the Group is building its niche and believe that this will ensure future profitability.

FORECAST

We maintain our forecast.

VALUATION AND RECOMMENDATION

As previously stated, we believe that there are pockets of opportunity present for Group. For example, in Islamic Banking and NOII, as was the case in this quarter. The higher cost incurred in FY17 will normalise gradually as the Group continue with its Affinity transformation program. Hence, we expect that earnings to come in stronger this year. Going forward, we believe that the transformation will place the Group in a firmer footing, with its digital offering to be a key component. As we are maintaining our optimistic view of the Group, we make no change to our

BUY call for the stock. We roll over our valuation to FY19. We adjust our TP to RM2.90 (from RM2.80) based on PBV of 0.6x.

Source: MIDF Research - 1 Jun 2018