INVESTMENT HIGHLIGHTS

• Within expectations

• Earnings growth driven by PPOP increase

• Strong growth in better RAR loans

• Asset quality improved further

• Tweaked FY19 and FY20 forecast to remain prudent

• Maintain BUY with unchanged TP of RM4.75 based on pegging FY20 BVPS to PBV of 1.3x

In line with expectations. The Group's 9MFY19 net profit was within our and consensus' expectations coming in at 71.4% and 75.7% of respective full year estimates. The +11.9%yoy growth in earnings was due to solid PPOP growth.

PPOP gained from better income and lower OPEX. PPOP in 9MFY19 grew +10.3%yoy due income growth of +4.3%yoy and OPEX decline of -1.8%yoy. Income from both NII and Islamic net financing income expanded +9.0%yoy to RM990.2m. This overcame the -12.1%yoy decline of income from NOII and Islamic nonfinancing income to RM228.5m. Better NIM had supported the NII and net financing income growth. For 9MFY19, NIM rose +12bps yoy to 2.48% due to strong growth in better RAR loans and OPR hike impact. Meanwhile, OPEX was -1.8%yoy lower due to absence of one-off restructuring cost.

Robust loans growth. Gross loans as at 3QFY19 grew +6.0%yoy to RM41.4b. More importantly, better RAR loans grew +26.6%yoy to RM17.1b. Main contributor was the constant strong traction from its Alliance One Account (AOA). It expanded RM2.2b from a year ago to RM2.8b. The better RAR loans are gradually superseding the more usual loan product such as mortgages. In fact, the lower RAR loans as at 3QFY19 had declined -4.6%yoy to RM24.3b.

Deposits growth keeping pace. Deposits expanded +6.1%yoy to RM43.3b. Nevertheless, this were due to +12.7%yoy increase in fixed deposits to RM24.0b. CASA grew +2.5%yoy to RM16.3b. The fixed deposits growth was mostly from consumer and was utilised to fund for the AOA and personal financing growth. This may lead to pressure to NIM later but the management are focusing on Alliance Saveplus, a less expensive deposit product, and Alliance@Work to build up CASA. As such, the management are expecting NIM to remain stable.

Source: MIDF Research - 1 Mar 2019