INVESTMENT HIGHLIGHTS

• Earnings meet with expectations

• Earnings declined due to one-off gains in 1QFY18

• NII growth moderated NOII decline

• Strong loans growth

• No change to FY19 and FY20 forecast

• Maintain BUY with revised TP of RM6.80 (from RM7.55) as we rollover our valuation with lower PBV to reflect impact of current uncertainties to its valuation parameter

Meet expectations. The Group's 1QFY19 net profit came within our and consensus' expectations coming in at 23.9% and 24.0% of respective full year. Its 1QFY19 earnings fell -8.7%yoy but we have to note that there was a one-off gain of RM152m in 1QFY18 from divestment of CSI. We estimated that discounting this gain, net profit would have grown +1.1%yoy instead.

NII growth moderated the NOII contraction. Total income fell - 3.2%yoy , dragged by NOII contraction of -19.3%yoy. The NOII decline was due to; (1) the gains in 1QFY18, and (2) lower bancassurance and wealth management fees. Nevertheless, NII grew +4.3%yoy to moderate the NOII decrease. The NII growth was due to strong loans growth offsetting the NIM compression.

Strong gross loans growth. Group gross loans grew +7.6%yoy to RM350.7b. In local currency terms, loans in Malaysia, Indonesia and Thailand expanded +7.7%yoy, +4.9%yoy and +9.5%yoy respectively. The gross loans growth was driven by residential mortgage expansion of +9.4%yoy to RM100.3b and business loans (non-residential properties and working capital) increase of +9.9%yoy to RM119.2b.

Robust deposits growth. Group deposits expanded +5.6%yoy to RM383.8b and +4.6%yoy if forex fluctuations were excluded. However, the deposits were driven by fixed deposits as CASA fell - 1.0%yoy to RM126.3b. We opine that this partly led the -9bp yoy in NIM compression. Again, we have to note that there was an OPR hike in 1QFY18 which boosted NIM for the quarter. For FY19, the management expect a NIM compression of 5bp to 10bp included the impact from the OPR cut in Malaysia.

OPEX increased due to F23 investments. OPEX increased +7.5%yoy mainly due to investments and Forward23 related expenses. Discounting this, OPEX only rose +3.5%yoy instead.

Stable asset quality. Meanwhile, provisions declined -25.2%yoy as there were improvement from consumer and commercial segments. Resultingly, GIL ratio improved -20bps yoy to 3.0%.

Source: MIDF Research - 30 May 2019