INVESTMENT HIGHLIGHTS

• Within expectations

• Weakness in income compensated by lower cost and better NOII

• Strong deposits growth but was led by fixed deposits

• Decent gross loans growth

• Asset quality was still an issue

• Maintain earnings forecast

• Maintain BUY with revised TP of RM2.50 as we rollover our valuation to FY20

Results in line. The Group posted net profit decline of -3.0%yoy. However, its earnings were in line with our and consensus' expectations at 24.5% of respective full year estimates.

Higher contribution from associates last year. The earnings decline was due to lower contribution from associates in 1QFY19, down by -32.2%yoy to RM9.1m. Also, losses from joint venture were +46.3%yoy to RM1.75m higher in 1QFY19.

Lower OPEX contributed to PPOP growth. PPOP went up +1.9%yoy driven by lower OPEX which fell -2.3%yoy. This was due to - 4.3%yoy to RM193.1m contraction in personnel cost.

Income flattish from lower NII and Islamic Banking income.

Income fell -0.9%yoy as NII and Islamic Banking income fell -12.7%yoy and -1.1%yoy respectively. This was possibly due to higher cost of fund given that interest expense grew +9.7%yoy to RM403.2m vs. interest income growth of +1.4%yoy to RM591.6m. This resulted in NIM compression by -37bp yoy.

NIM compression from strong FD growth. Deposits expansion outpaced gross loans growth with +8.3%yoy to RM57.4b vs. +4.6%yoy to RM48.5b respectively. Deposits growth was led by fixed deposits (FD) growth of +20.5%yoy to RM44.0b, while CASA declined -4.1%yoy to RM8.3b.

NOII moderated NII weakness. NOII grew +15.1%yoy moderating the NII weakness. It was supported by strong increase in net gains on financial instruments which increased +RM38.3m to RM71.5m.

Gross loans growth driven by mortgages. The major contributor for the gross loans growth was due to mortgages. This went up by +20.3%yoy to RM10.9b.

GIL ratio remained elevated. GIL ratio as at 1QFY19 was up by +6bp qoq to 3.31%.

Source: MIDF Research - 31 May 2019