INVESTMENT HIGHLIGHTS

• In line with expectations

• Income growth continue to contribute to earnings expansion

• Mortgage and SME loans drove loans growth

• Asset quality stable

• Dividend of 7.5 sen declared

• No change to forecast.

• Maintain TRADING BUY with unchanged TP of RM6.00

Earnings as expected. The Group registered 1HFY18 net profit that was within ours and consensus' expectations. The net profit of RM1.16b was 53.4% and 54.4% of respective full year estimates.

Strong income rise continue support earnings growth. Net profit went up +15.9%yoy due to the strong income growth of +8.0%yoy. NII, NOII and Islamic Banking income expansion contributed to the income growth. NOII grew +2.9%yoy on higher treasury related income. Islamic Banking income grew +18.0%yoy due to net funding income increase of +22%yoy to RM614m.

Main income growth from better NIM. Similarly, NII grew +7.4%yoy. Both conventional and Islamic NII saw solid growth due to continuing NIM improvement. NIM in 2QFY18 improved +1bps qoq and +10bps yoy from the OPR hike and funding cost management.

Higher 1HFY18 OPEX from impact of 1QFY18 increase. OPEX in 1HFY18 expanded +7.5%yoy due to one-off personnel and IT related cost in 1QFY18 as the Group continue to invest. However, on a sequential quarter basis, 2QFY18 OPEX fell -7.4%yoy as these expenses normalised.

Mortgages and SME continue to drive loans growth. Gross loans grew at a decent pace of +3.1%yoy to RM156.6b. This was the result of the drag coming from overseas operations as gross loans there fell - 8.9%yoy to RM16.6b. Domestic operations gross loans grew +4.5%yoy to RM140.1b driven by mortgages and SME loans. Mortgages grew +16.4%yoy to RM43.4b and SME loans grew +8.2%yoy to RM21.0b.

Slight uptick in GIL ratio but otherwise stable. GIL ratio was up by +4bps on sequential year and quarter basis to 2.33%. This was mainly from higher GIL ratio in the domestic asset as domestic GIL ratio was up by +12bps(qoq) to 1.76%. However, putting into context, in improved by -27bps(yoy).

Deposits growth flattish due to liquidity management. Total deposits grew +0.1%yoy to RM166.0b as the Group managed its liquidity. However, CASA grew +4.2%yoy to RM48.1b. We believe that this had led to the NIM improvement and overall NII growth.

FORECAST

We are maintaining our forecasts.

VALUATION AND RECOMMENDATION

The Group continue to maintain its solid start. Income growth continues to be strong boosted by NIM improvement. Although we believe that the industry will be facing with the pressure of NIM compression coming from deposits competition, we opine that the Group will be able to manage its funding cost judging from its performance in 1QFY18 and 2QFY18. We also believe that its high OPEX will normalise as we have seen in 2QFY18. With the good performance of the stock, we believe there still will be trading opportunities for the stock. Hence, we are maintaining our TRADING BUY call with unchanged TP of RM6.00. Our TP is based on pegging its FY19 BVPS to 0.95x which is its 5-year average PBV.

Source: MIDF Research - 3 Sept 2018