INVESTMENT HIGHLIGHTS

• Fell short of expectations – variance was due to higher than expected provisions.

• Islamic Banking income saw solid growth and moderated total income decline.

• Higher provisions due to higher ECL.

• Robust loans growth.

• Putting our BUY call and TP of RM2.90 under review pending analyst briefing Monday next week.

Did not meet with expectations. The Group's 1HFY18 net profit fell short of ours and consensus’ expectations as it came at 36.5% and 42.6% of respective full year estimates. The variance was due to provisions coming in higher than expected.

Earnings fell when compared with AHB. Earnings for 1HFY18 grew +3.0%yoy. However, following the Group have changing its composition following from the reorganization exercise, a better comparison will be with Affin Holding Bhd (AHB), the previous group holding entity. Comparing the Group with AHB’s 1HFY18 result, net profit fell -20.0yoy on lower income and higher provisions.

Income decline moderated by Islamic Banking income. Total income fell -1.9%yoy when compared with AHB's 1HFY18 total income. However, this was moderated by the strong increase in Islamic Banking income which grew +34.4%yoy.

Higher than expected provisions. Provisions went up +95.0%yoy as it breach our full year estimation. This was due to higher expected credit losses (ECL) which came in RM103.9m in 2QFY18. Comparatively, ECL in 1QFY18 was a write back of RM17.1m. This could potentially signal deterioration in asset quality. GIL ratio was 2.81% as at 2QFY18 vs. 2.54% as at 1QFY18. We noted that there was an increase of RM137.8m to RM289.4m in impaired loans in the construction sector.

Robust loans growth. Gross loans as at 2QFY18 grew +5.5%yoy to RM47.8b, mainly driven by household segment. Loans for this segment expanded +11.6%yoy to RM21.5b. This was supported by mortgages which rose +25.0%yoy to RM9.5b. We believe that this is evident that the Group's shift towards increasing the contribution from consumer segment is having the desired effect.

Source: MIDF Research - 29 Aug 2018