KEY INVESTMENT HIGHLIGHTS

• Results were within expectations

• NOII was key to total income growth

• NIM had recovered and loans growth decent

• Asset quality improved

• Good retail and business banking CASA growth

• Higher than expected dividends of 31sen/share

• Downward adjustment to FY20 and FY21 earnings forecast

• Maintain BUY with revised TP of RM6.30 from RM6.35

Within expectations. The Group FY19 reported earnings of RM2.48b was within expectations. It came at 99.3% and 102.9% of ours and consensus’ full year estimates respectively. The earnings growth of +7.7% was driven by income growth and lower provisions.

NOII was the key to total income growth. Total income grew +4.3%%yoy led by the +14.7% expansion of NOII to RM2.14b. NOII (including Islamic banking NOII) growth was due to treasury income which rose +40.3%yoy to RM794.4m. Meanwhile, NII (including Islamic banking net fund based income) was relatively flat at +0.4%yoy to RM4.96b. This was due to the NIM compression in FY19, partly attributable to the OPR cut in May-19. However, we note that NIM have recovered to 2.14% in 4QFY19 from 2.09% in 2QFY19.

Group gross loans growth tapered off. Group gross loans as at 4QFY19 grew +4.3%yoy to RM176.2b. This was slightly lower than the +5.2%yoy posted as at 3QFY19. The main contributor for the tapering of growth was lower growth in the business banking segment, which expanded +2.7%yoy to RM25.9b (vs. +4.4%yoy as at 3QFY19). This was hardly surprising as we had observed a general cautiousness for borrowing from businesses last year due to uncertain economic conditions. However, we noted that retail loans remained resilient where it grew +6.4%yoy to RM90.1b. It was driven by mortgages which grew +9.6%yoy to RM58.6b.

Good improvement in asset quality. The Group’s GIL ratio improved -9bp yoy and -19bp qoq. Meanwhile, its FY19 credit cost improved by - 1bp yoy to 0.18%.

Robust deposits growth. Customer deposits grew +6.5%yoy to RM190.6b with. FD and CASA expanding +10.1%yoy to RM111.1b and +5.4%yoy to RM48.9b respectively. While FD growth outpaced that of CASA, we are not overly concerned. This is because retail and business banking CASA grew +7.1%yoy to RM16.9b and +6.1%yoy to RM14.3b respectively. Meanwhile, overseas CASA rose +13.9%yoy to RM8.6b.

More or less met targets. We observed that the Group more or less met its target for FY19. For FY20, the management is targeting the following: (1) ROE of 10.3-10.5%, (2) loans growth of +4.0%yoy, (3) CASA growth of +4.0%yoy, (4) GIL ratio of 1.95%, and (5) CI ratio of 48.5%. We believe that these targets are achievable. However, we are closely monitoring asset quality given the headwinds to the economy this year.Higher than expected dividends. The Group announced a final dividend of 18.5sen/share which brings total dividends to 31sen/share or 50.1% payout ratio. This is higher than we had anticipated and do not discount the possibility of similar payout in FY20.

No change in earnings forecast. We are adjusting our earnings forecast for FY20 and FY21 downwards by -2.4% and - 5% to take into account the increased possibility of another OPR cut.

Valuation and recommendation. We continue to be pleasantly surprised by the Group’s resilience in light of the challenging environment. We noted that there have been good traction with its initiatives that we believe had translated to continuing good performance the Group has recoded recently. Meanwhile, we expect NOII might sustain its robust growth albeit not at the same pace as FY19. Furthermore, the prospects of good dividends should be a good enticement. Hence, we maintain our BUY call with revised TP of RM6.30 (from RM6.35), pegging its FY20 BVPS to a PBV of 0.97x. The revision in our TP is due to the downward adjustment of our FY20 earnings forecast.

Source: MIDF Research - 28 Feb 2020