INVESTMENT HIGHLIGHTS

• Looking to firm up its products both in asset and liabilities side

• Refocus on auto loans is interesting

• The management will be enhancing its CASA collection

• Managing its NIM for FY20

• No change to forecast.

• Positives priced in. Maintain NEUTRAL with unchanged TP to RM4.50

Key take away from meeting. We met with the management last Friday to understand some of the developments highlighted by its 4QFY19 results. Below are some of the key take away from that meeting:

• Firming up its products into the more under penetrated areas both in asset and liabilities side.

• The management will enhance its CASA collection products.

• The Group will be managing its NIM.

Income growth despite NIM compression. Recall, the Group posted strong +33.0%yoy earnings growth to RM1.51b in FY19 which was supported by the higher recoveries (RM386.1m) resulted from the retail debt sale. Also, OPEX was lower by -12.0%yoy to RM2.13b. Meanwhile, FY19 NII grew +3.6%yoy to RM1.72b despite -11bp yoy to 1.89% compression in NIM. The NIM compression was due to pricing of loans in a competitive market especially in retail banking. However, the NIM compression 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.

Looking to penetrate more segments. Going forwards, the management is targeting to penetrate more segments given that its mortgage and SME loans seem to be firm at current juncture. Two products that the management will look to clean up, stabilize and grow are credit cards and auto loans.

Refocus on auto loans. We find the refocus on auto loans interesting as most of its peers seem to be decreasing its auto loans book. We noted that the Group’s auto loans book have been decreasing sharply (by -17%yoy as at 4QFY19). However, the management noted that the Group have been traditionally strong in this segment and have a good network to it should take advantage of. We believe that this should provide the Group with an incremental boost to its loans growth and NII. However, the Group will need to be mindful of risk to its asset quality.

Source: MIDF Research - 3 Jun 2019