INVESTMENT HIGHLIGHTS

• Exceeded expectations with strong earnings growth

• Islamic banking income and lower provisions main driver

• Robust loans growth

• Solid improvement in asset quality

• Final dividend of 13sen, total dividend 20.5sen. Change to higher payout ratio policy

• Upward revision of +7.7% to FY19 earnings

• Upgrade to BUY with revised TP of RM6.10 (from RM6.00)

Above expectations. The Group posted a strong set of FY18 results. Its net profit came in above our and consensus’ expectations at 106.0% and 105.3% of respective full year estimates. The outperformance was due to the strong Islamic banking income growth.

Strong end to the year. The Group ended the year strongly as 4QFY18 earnings grew +22.9%yoy, resulting in FY18 earnings growth of +18.2%yoy. Main driver for the stellar performance were as mentioned the Islamic banking income growth and lower provisions. It was also boosted by decent NII growth.

Double digit growth for Islamic banking income. Islamic banking income expanded +32.4%yoy supported by the growth in both fund based and non-fund based income. These rose +25%yoy to RM1.23b and >100%yoy to RM141m respectively.

NII growth from better NIM… For FY18, NII grew +3.8%yoy, contributed by NIM improvement in 1HFY18. While NIM have moderated in 2HFY18 due to deposits competition, coming in at 2.23% and 2.20% in 3QFY18 and 4QFY18 from 2.29% in 2QFY18, overall FY18 NIM was better by +6bps yoy to 2.24%. Management expects that FY19 may see further NIM compression of -3bps to -5bps due to deposits competition.

…and loans growth. The other factor that supported NII increase was the robust gross loans growth. Gross loans grew +5.5%yoy to RM168.9b. The two biggest contributors to loans book, i.e. mortgages and SME, continue to lead loans growth. These went up by +14.0%yoy to RM53.5b and +3.9%yoy to RM23.0b respectively. We believe that this may moderate the pressure on NIM in FY19 as the management expects loans to expand +5.0yoy.

Lower provisions and better asset quality. Provisions fell - 48.8%yoy as the Group recorded recoveries of certain assets and substantial impairment provision for O&G exposure in FY17. We opine that the GIL ratio improvement was one of the highlight as it went from 2.23% as at 4QFY17 to 2.06% as at 4QFY18.

Source: MIDF Research - 28 Feb 2019