INVESTMENT HIGHLIGHTS

• Earnings in line with expectations

• Lower OPEX and provisions filled in the gap from decline in income

• Asset quality improved

• Gross loans grew robustly, matched by deposits growth

• 2nd interim dividend of 12sen, full year dividend of 25sen

• Tweaking FY19 net profit forecast by -13.7% downwards

• Maintain BUY with adjusted TP of RM7.55 (from RM7.70)

Earnings in line. The Group FY18 normalised and reported net profit came in line with expectation. The normalised net profit (excluding gains from CPAM and CPIAM stake divestments) was 98.4% and 98.0% of our and consensus' full year estimates respectively. Normalised earnings in FY18 grew +4.0%yoy as the lower OPEX and provisions supported the income gap.

Multiple factors lead to weaken income. Total income fell - 6.6%yoy as NII and NOII in FY18 declined from FY17. These fell - 2.5%yoy and -16.0%yoy respectively. The Group NII was affected by NIM compression (especially in Indonesia) while NOII contracted due to weak capital market in Malaysia. This can be observed by the lower income in commercial (-6.0%yoy to RM2.05b) and wholesale (- 18.8%yoy to RM4.84b) segments.

Islamic banking income moderated the impact. However, we believe that Islamic banking income moderated the NII and NOII decline as total fund and non-fund based income grew +22.4%yoy to RM2.61b vs. decline of -7.9%yoy to RM9.63b and -19.0%yoy to RM4.05b in conventional NII and NOII respectively.

Lower OPEX and provisions filled the gap. OPEX fell -5.2%yoy as personnel cost and establishment cost contracted -6.2%yoy to RM4.93b and -8.6%yoy to RM1.95b respectively. The OPEX decline was mainly due to deconsolidation of CSI and forex impact. Meanwhile, provisions declined -35.8%yoy as there were improvement from consumer and commercial segments. Resultingly, GIL ratio improved -5bps yoy to 2.9%.

Gross loans growth remains robust. Group gross loans grew +7.0%yoy to RM343.8b. Excluding effect of forex fluctuations, it grew +7.4%yoy lead by +10.5%yoy growth in Malaysia. This was contributed by +8.3%yoy expansion ins consumer gross loans with mortgages growing +9.4%yoy. Thailand gross loans grew +7.8%yoy on its own currency basis as a result of the recalibration of its assets.

Source: MIDF Research - 1 Mar 2019