KEY INVESTMENT HIGHLIGHTS

• Reported and normalised earnings within our expectations

• Main driver for the strong earnings growth was the robust income growth and lower provisions

• NII grew as NIM recovered in 3QFY19, while NOII expansion was due to improved FX and trading income

• Rise of OPEX due to Forward23 investments

• Consumer drove loans and deposits growth

• No concern on asset quality

• No change to FY19 and FY20 earnings forecast

• Maintain BUY with unchanged TP of RM6.30

Earnings in line with expectations. The Group posted 9MFY19 reported earnings decline of -16.9%yoy. However, it was within ours and consensus' expectations as the decline was due to the one-off gains in 9MFY18 and transformational cost this year. It came at 74.4% and 74.7% of respective full year estimates. On a normalised basis, the earnings grew +12.2%yoy on robust income growth and lower provisions, which was also in line with our expectation.

Robust income growth. The 9MFY19 normalised total income for the Group expanded +7.2%yoy. NII grew +5.0%yoy due to recovered NIM and strong gross loans growth. Meanwhile, NOII grew +12.8%yoy from improved FX and trading income. Gains from financial assets at fair value came in at RM932.3m in 9MFY19 as compared to loss of RM413.1m the same period last year.

NIM recovered. NIM in 9MFY19 was lower -5bp yoy to 2.47% due to policy rate cuts in Malaysia and Indonesia this year. However, NIM had improved +4bp qoq and +16bp yoy in 3QFY19, mainly contributed by the recovery in Malaysia. This came from deposits repricing following the OPR cut in 2QFY19 which moderated the effect of the strong growth in deposits.

Rise in OPEX due to one-off transformational cost. Reported OPEX grew +15.6%yoy due to one-off transformational cost amounting to RM349m. The transformational cost includes the MSS cost in Indonesia. Normalising these costs, OPEX grew +10.1%yoy driven by investments and Forward23 related expenses. We noted that the underlying OPEX rose at a more manageable 4.9%yoy.

Consumer driving gross loans growth. Group gross loans as at 3QFY19 grew +5.6%yoy to RM360.7b driven by +8.9%yoy to RM180.5b growth in consumer banking and +4.5%yoy to RM115.8b in wholesale banking. Meanwhile, commercial banking loans book declined -0.9%yoy to RM64.4b due to lumpy repayments and what we believe as the cautious sentiment of businesses. Within consumer banking growth in mortgages was the key factor. Mortgage book in Malaysia, Indonesia, Thailand and Singapore expanded +8.3%yoy, +12.6%yoy, 13.7%yoy and +18.4%yoy respectively.

Source: MIDF Research - 25 Nov 2019