INVESTMENT HIGHLIGHTS

• Net profit within expectations

• Main growth driver was NOII and flat OPEX

• Gross loans and deposits growth was mostly contributed by Malaysia. Singapore and Indonesia also saw growths

• Asset quality remains steady

• Impact from MFRS 9 not as bad as initially estimated

• No change to forecast

• Maintain BUY. Adjust our TP to RM11.40 (from RM11.20) as we rollover valuation to FY19, based on PB multiple of 1.6x

Net profit within expectations. The Group posted 1QFY18 net profit of RM1.87b, a +9.9%yoy growth. This was within ours and consensus’ expectations at 23.2% and 22.9% of respective full year estimates.

Solid PPOP growth drove earnings higher. PPOP grew +10.8%yoy, driving the earnings growth. This was due to strong NOII expansion and supported by decent NII increase. NOII grew +12.6%yoy contributed by +20.5%yoy growth to RM1.51b in net earned insurance premiums. This had moderated the flat commission, services charges & fees (-0.4%yoy to RM836m), lower investment & trading income (-52.9%yoy to RM109m) and the swing to unrealised losses in securities & derivatives (-RM281m from RM130m gain). Meanwhile, NII grew +2.9%yoy which was supported by +1.5%yoy growth in gross loans.

Flat OPEX was also a contributor. OPEX was flat as the rise in personnel and marketing expenses (+5.8%yoy and +5.6%yoy to RM1.59b and RM142.8m respectively) was reined in by lower establishment and admin & general cost (-5.2%yoy and -10.6%yoy to RM457.2m and RM588.1m respectively). The declined in establishment cost was due to lower IT expenses while admin & general cost was lower due to absence of MFRS 9 automation cost last year.

Malaysian operation looking robust. As mentioned, gross loans grew only +1.5%yoy to RM493.4b. This was mainly supported by Malaysia where gross loans grew strongly by +6.7%yoy to RM288.9b. However, total international segment (Singapore and Indonesia) gross loans growth declined -5.1%yoy to RM197.2b. This was probably due to currency effect as in local currency terms, gross loans in Singapore and Indonesia grew +5.5%yoy and +2.9%yoy to SGD41.2b and IDR126.2t respectively. Growth in almost all segment contributed to the gross loans expansion in Malaysia. Notably was mortgage and corporate global banking where both makes up 29% of loans book. These grew +8.0%yoy to RM82.4b and +8.8%yoy to RM83.2b respectively.

Source: MIDF Research - 30 May 2018