INVESTMENT HIGHLIGHTS

• Within expectations

• Slight earnings decline due to higher provisions

• Gil ratio uptick but due to R&R and IPL

• Income flattish, dragged by NOII decline

• Robust loans growth with deposits growth matching

• No revision to FY19 and FY20 forecast

• Maintain BUY with revised TP of RM11.00 (from RM11.40) as we rollover our valuation, based on PB multiple of 1.5x.

In line with expectations. The Group posted 1QFY19 net profit of RM1.81b which was in line with our and consensus’ expectations. It came in at 21.6% of ours and consensus’ full year estimates respectively.

Slight earnings decline on higher provisions... Net profit for 1QFY19 declined -3.3%yoy due to higher provisions. This went up by +27.3%yoy with +18.6%yoy rise to RM604m in allowance for loan losses. The higher provisions were due to additional provisioning for existing impaired loans which including in Singapore. However, the management maintains its guidance of 40bp credit cost for FY19.

..and slight uptick in GIL ratio. There was a slight uptick in GIL ratio as it went up +7bp qoq to 2.48%. Nevertheless, non-performing loans portion of the GIL ratio was better by -2bp qoq to 1.72% and most of the contributor was from restructured & rescheduled (R&R) accounts (+3bp qoq to 0.15%) and IPL (+6bp qoq to 0.61%).

Flat PPOP despite tough operating environment. PPOP was flat at +0.1%yoy, despite the modest OPEX rise of +1.4%yoy and expansion of NII. Main drag for PPOP was the -1.6%yoy in NOII. The NOII decline was due to lower fee income (-7.5%yoy to RM773m) and mark-tomarket losses of financial liabilities.

Decent NII growth on robust gross loans growth. NII rose +1.6%yoy even as NIM compressed -9bp yoy. The NII expansion was supported by robust gross loans growth. Group gross loans grew +4.8%yoy to RM516.9m. Main growth came from Indonesia where gross loans grew +11.3%yoy to IDR140.5t, whereas Malaysia and Singapore saw gross loans expanding +3.7%yoy to RM299.5b and +3.4%yoy to SGD42.6b respectively. The main driver for the loans growth in Malaysia was mortgage, SME and auto finance. These segments grew +8.6%yoy to RM82.4b, +12.2%yoy to RM15.4b and +4.5%yoy to RM46.2b respectively.

Source: MIDF Research - 31 May 2019