INVESTMENT HIGHLIGHTS

• Within our and consensus’ expectations

• Income was lower due to lower NIM

• Earnings growth supported by lower OPEX and ECL allowances

• Gross loans grew better than industry. Deposits growth driven by fixed deposits

• Slight uptick in GIL ratio

• Maintain BUY with revised TP of RM6.35 (from RM6.10) as we rollover our valuation

Within expectations. The Group’s 1QFY19 earnings came within our and consensus’ expectations at 25.2% and 26.1% of respective full year estimates. The growth net profit growth of +6.7%yoy was supported by continued strong Islamic banking income growth and lower provisions.

Lower ECL supported earnings. ECL allowances came in lower by - 36.4%yoy to RM72.9m mainly due to higher writeback in losses for financial investments & assets, and lower allowances for loan impairment. This had provided support to earnings growth as PPOP was softer in the quarter, where if fell -1.1%yoy due to decline in income.

OPR hike boosted income same quarter last year. Net fund based contracted -2.2%yoy to RM1.21b due to higher funding cost. This especially came from the conventional side as overall Islamic banking income grew +39.1%yoy. Comparatively NII declined -5.4%yoy, with interest expense increasing +14.6%yoy to RM1.15b. Also, we have to recall that there was an OPR hike in 1QFY18 which boosted income. This subsequently normalised. Hence, the -12bp yoy reduction in NIM.

Higher fixed deposits also caused higher funding cost. Total deposits saw strong growth, expanding +9.5%yoy to RM186.9b. However, this was led by higher fixed deposits (FD) which grew 19.4%yoy to RM115.8b. Meanwhile, CASA fell -8.0%yoy to RM45.7b due to decline in corporate CASA. This was also a contributor to the higher cost of fund. Nevertheless, the management expects that CASA could pick up due to the launch of its mobile banking services.

OPEX was lower. OPEX was down by -1.9%yoy attributable to lower personnel costs which fell -4.7%yoy to RM508m. This moderated the lower income.

Loans growth better than industry. Gross loans for the Group expanded +5.6%yoy to RM170.1b. Main driver were mortgages and SME segment which grew +12.4%yoy to RM54.96b and +2.4%yoy to RM22.9b respectively. Domestic gross loans grew +5.1%yoy to RM153.8b which was above industry loans growth. Meanwhile, gross loans in Singapore also saw strong growth with +10.8%yoy to RM12.3b.

Source: MIDF Research - 28 May 2019