INVESTMENT HIGHLIGHTS

• Ended the year beyond expectation

• Weakness in income compensated by contained cost and write back

• Strong gross loans growth

• Deposits growth led by fixed deposits growth

• Maintain BUY with unchanged TP of RM2.70

Above expectations. We were pleasantly surprised by the Group's FY18 result. It came in above our expectations at 110.9% of our full year estimate. The variance was due to our underestimation of its write back which came in more than we had expected.

In comparison with AHB, earnings declined slightly. The Group's earnings for FY18 grew +20.4%yoy. However, we view that a better comparison will be with Affin Holding Bhd (AHB) following the Group have changing its composition following from the reorganization exercise. Consequently the Group net profit declined -2.4%yoy due to lower income.

Income affected by lower NII and NOII. Total income in FY18 fell - 4.5%yoy when compared between the Group with AHB. This was due to NII lowered by -10.2%yoy on higher interest expense, which grew +4.8%yoy to RM1.57b as the Group were scrambling to meet the Net Stable Funding Ratio requirement. Hence, it had to rely on the more expensive fixed deposits (FD) to grow its overall deposits. Total deposits expanded +12.7%yoy to RM57.3b whereas FD grew +24.8%yoy to RM42.8b and CASA declined -6.7%yoy to RM8.9b. For FY19, we expect that FD growth will likely be contained with better CASA growth due to introduction of new transaction banking system and revamp of its online retail banking. Meanwhile, NOII declined -7.9%yoy due to contraction of -30.8%yoy to RM146.0m in net gains on financial instruments.

Cost contained. Besides the strong growth in Islamic banking income (+19.1%yoy), the decline in total income was also moderated by OPEX being contained. It is commendable that OPEX fell -0.5%yoy despite investments for its transformation program such as hiring of personnel and system investments.

Gross loans grew higher than system. Gross loans grew +6.3%yoy to RM49.0b led by consumer segment which expanded +11.1%yoy to RM24.9b. As such, the management have succeeded in reorganized its loans book to target the consumer segment with 50.9% contribution. Mortgages which grew +24.5%yoy to RM10.6b. The Group also saw traction in its credit card loans which grew +29.3%yoy to RM144.1m. The management identified credit card to be an area of growth in FY19.

Source: MIDF Research - 4 Mar 2019