INVESTMENT HIGHLIGHTS

• Met expectations on strong 3QFY18

• Strong operational showing

• Earnings boosted by result from associate

• Robust gross loans growth

• Declared an interim dividend of 5 sen

• Maintain BUY with unchanged TP of RM2.70

Recovered to meet expectations. The Group's 9MFY18 net profit met expectations due to the strong 3QFY18 performance. Its earnings was 79.2% and 71.3% of ours and consensus' full year estimates respectively.

In comparison with AHB, earnings expanded. The Group's earnings for 9MFY18 grew +44.7%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 9MFY18 result, the Group's net profit recovered to post an expansion of +5.1%yoy from the -20.0yoy decline that was registered in 1HFY18.

Operationally strong showing in 3QFY18. Main contributor for the Group's earnings growth was the strong 3QFY18. Comparing with AHB, its net income grew +3.0%yoy and its OPEX fell -8.6%yoy. This resulted in PPOP growth of +29.7%yoy. With this, the 9MFY18 PPOP only declined -3.7%yoy. However, we note that AHB had a finance cost of RM41.7m which were not taken into account at PPOP level. If we account this, the Group would have posted +4.0%yoy increase instead.

Write back in 3QFY18. The Group saw a writeback of RM1.04m in 3QFY18. This had reduced the increase in 9MFY18 provisions to +22.7%yoy from the +95.0%yoy posted in 2QFY18.

Result from associate boosted earnings. The 9MFY18 Group share of result from associate went up +55.1%yoy to RM38.5m.

Robust loans growth. When compared with AHB, gross loans as at 3QFY18 grew +8.6%yoy to RM48.6b. This was mainly driven by household segment where loans expanded +12.9%yoy to RM22.3b. Residential mortgages continue to be a main driver as it grew +24.2%yoy to RM9.97b. We believe that this was evident that the Group ability to shift towards increasing the contribution from consumer segment.

FORECAST

We maintain our forecast as the result were within our estimation.

VALUATION AND RECOMMENDATION

We had expected the rebound in earnings growth in 3QFY18. However, we were pleasantly surprised by the magnitude, especially by the strong showing in NOII and Islamic Banking income. The expected write back on the loans provision also came through in the quarter, which boosted earnings. We believe that earnings will recover full in FY19 as the Group continue to resolve its asset quality issue. Hence, we maintain our BUY call for the stock with unchanged TP of RM2.70. Our TP is based on pegging FY19 BVPS to PBV of 0.6x.

Source: MIDF Research - 29 Nov 2018