INVESTMENT HIGHLIGHTS

• Upper bound of our expectation

• Strong PBTZ growth for Bank Islam and Syarikat Takaful

• Slight NIM compression but gross financing growth robust

• Deposits grew at slower pace

• Revising FY19 and FY20 forecast by +4.1%

• We maintain our BUY with revised TP of RM5.05 due to rollover of valuation

Upper bound of expectation. The Group posted a 1QFY19 earnings at the upper bound of our expectation. The PAZTAMI of RM202.5m was 29.5% and 26.6% of our and consensus' full year estimates respectively. The earnings growth of +17.6%yoy was due to strong growth of +18.1%yoy in total income, which overcame the +19.1%yoy to RM459.1m growth in expenses and finance cost.

Continued earnings momentum from Bank Islam and Syarikat Takaful. Bank Islam and Syarikat Takaful's 1QFY19 PBZT grew +6.1%yoy to RM219.9m and +33.5%yoy to RM84.9m respectively. The earnings growth from Bank Islam was supported by higher total net income underpinned by +12.5%yoy expansion to RM88.8m in gross fund based income. Meanwhile, Syarikat Takaful earnings growth was attributable to the higher net Wakalah fee income arising from business growth in the Family Takaful segment.

Expenses rose higher. The rise in total expenses was due to higher personnel cost which grew +14.0%yoy due to yearly salary increment. The quarter also saw higher promotional activities as the corresponding expenses grew +33.2%yoy to RM112.2m. Meanwhile, the increase in finance cost was mainly due to the new issuance of Subordinated Sukuk Murabahah amounted to RM300m.

NIM compressed slightly but holding steady. For Bank Islam Group, the net income margin (NIM) compressed slightly by -2bp qoq and -4bp yoy to 2.59% in 1QFY19. This was due to higher cost of fund as liabilities rate went up by +8bp qoq vs. asset yield increase of +6bp qoq. However, we are not concerned by this as we opine that overall NIM are holding steady.

Healthy gross financing growth. Gross financing grew +8.7%yoy to RM46.1b supported by robust growth of +8.5%yoy to RM35.6b, +8.7%yoy to RM6.6b and +10.1%yoy to RM4.5b in the consumer, commercial and corporate segments. In regards to consumer segment, house financing continue to be the main driver, as it expanded +10.6%yoy to RM19.1b.

Source: MIDF Research - 24 May 2019