KEY INVESTMENT HIGHLIGHTS

• Results were within expectations

• Income was resilient with NII recovering in 3QFY19. NIM recovered in 3QFY19 as fixed deposits were repriced lower

• Gross loans growth led by retail mortgage

• Deposits growth led by fixed deposits but not too concerned as it was probably priced downwards

• No concern on asset quality as it was due to seasonal delinquency

• No change to FY19 and FY20 earnings forecast

• Maintain BUY with unchanged TP of RM6.35

Within expectations. The Group posted 9MFY19 reported earnings growth of +7.0%yoy which was within expectations. It came at 74.4% and 77.2% of ours and consensus’ full year estimates respectively. The earnings growth was driven by income growth and lower provisions.

Resilient income. Total income grew +3.7%yoy supported by the +15.3%yoy to RM1.58b expansion in non-fund based income. Main contributor was the higher net trading and investment income, and insurance underwriting surplus. Meanwhile, net fund based income declined by -0.6%yoy to RM3.68b impacted by the OPR cut in May. This came mostly from the conventional NII (-2.9%yoy). However, we noted that NII had recovered in 3QFY19 as it grew +4.1%qoq and +3.0%yoy.

NIM recovered in 3QFY19. With the OPR hike last year affecting cost of fund and OPR cut this year affecting asset yields, NIM in 9MFY19 compressed by -13bp yoy. Nevertheless, we were pleasantly surprised at the pace normalization as NIM in 3QFY19 improved +4bp qoq. We understand that FD that matured in August CY19 had been repriced downwards. We understand there will be another two batch of FD to be repriced (in November and December) which may result in NIM holding.

Lower provisions even as there was GIL ratio uptick. Allowances for ECL were -12.9%yoy lower in 9MFY19. This was due to lower ECL on loans (-2.7%yoy to RM239.1m) and higher writeback on other financial assets (>+100%yoy to RM30.7m). There was a slight uptick in GIL ratio from domestic which rose +7bp qoq to 1.68%. We believe the fact that provisions were not affected suggest sufficient coverage. Besides, we understand the uptick in domestic GIL ratio was due to seasonal delinquency as there were three long weekends in September CY19.

Gross loans growth remains resilient. Group gross loans as at 3QFY19 grew +5.2%yoy to RM172.8b contributed by +7.6%yoy expansion to RM88.9b in the retail segment. Mortgages were the primary driver in this segment as it grew +10.5%yoy to RM57.5b. Separately, we understand that the management has tighten credit underwriting for unsecured loans including switching to salary deduction schemes, slowing the growth to +4.4%yoy to RM9.2b. We view this as prudent and opine it to be appropriate at current climate. Meanwhile, there was also some support from business banking segment as it expanded +4.4%yoy to RM26.0b. The weakness was in wholesale banking as it was flattish at +0.7%yoy to RM41.0b. This does not surprise us given current cautiousness from businesses.

Source: MIDF Research - 26 Nov 2019