INVESTMENT HIGHLIGHTS

• Exceeded expectations. The variance was due to one-off gain

• Higher recoveries and lower OPEX supported earnings growth

• Income dragged by lower NOII

• Strong gross loans growth

• Final dividend of 15sen

• No change to forecast. Maintain NEUTRAL with unchanged TP to RM4.50

Above expectations on one-off gain. The Group registered FY19 earnings of RM1.51b which was above our expectations at 110% of our estimate. The variance was due to the gain of RM354m from the sale of retail debt leading to higher recoveries. It was 104% of consensus’ estimate.

Strong growth on higher recoveries and lower OPEX. The Group strong +33.0%yoy earnings growth in FY19 was supported by the higher recoveries (RM386.1m) resulted from the retail debt sale. This lead to a writeback of RM303.8m. Meanwhile, OPEX was lower by - 12.0%yoy. However, this included the MSS cost incurred in FY18. Stripping the MSS cost, the underlying OPEX still fell -4%yoy which highlighted the benefit from its cost rationalisation.

Income dragged by NOII. The writeback and lower OPEX compensated for the drop of -1.4%yoy in income. This was due to the decline in NOII which fell -9.3%yoy. Even discounting the one-off gains recognized in FY18, NOII fell -6.3%yoy to RM1.32b, resulting from soft market conditions throughout 9MFY19.

Robust loans growth moderated NIM compression. FY19 NII grew +3.6%yoy despite -11bp yoy compression in NIM. The NIM compression was due to pricing of loans in a competitive market especially in retail banking. However, this was moderated by robust gross loans growth of +5.7%yoy to RM101.8b as at 4QFY19, which was above industry’s growth rate. Main driver for the loans growth was the mortgage, SME and overall business segment. These expanded +13.1%yoy to RM30.5b, +21.2%yoy to RM20.2b and +9.8%yoy to RM42.7b respectively.

Asset quality improved. The Group’s GIL ratio as at 4QFY19 was 1.59% vs. 1.62% as at 3QFY19. The improvement came from lower gross impaired loans in the wholesale business segment. The management expects the GIL will trend further downwards in FY20 with the resolution of certain accounts.

Source: MIDF Research - 29 May 2019