KEY INVESTMENT HIGHLIGHTS

• Result was in line with expectations

• Higher earnings as a result of strong PPOP expansion

• Resilient NII growth from stable NIM and robust loans growth

• Trading income led NOII expansion

• Deposits decline but this was due to the release of retail FDs; CASA showed solid uptick

• No change to FY20 and FY21 earnings forecast

• Maintain TRADING BUY

Results in line. The Group registered its 9MFY20 which was in line with expectations. It came in at 78% of ours and consensus’ full year estimates respectively.

Higher earnings from PPOP growth. Net profit grew +4.5%yoy in 9MFY20. This was due to the PPOP expansion of +13.5%yoy which moderated the normalisation credit cost. The higher net income was the driver for the PPOP growth.

Resilient NII growth from robust loans growth and stable NIM. The Group saw its NII (inclusive of Islamic banking net fund based income) rising by +6%yoy to RM2.07b in 9MFY20. This was due to robust gross loans growth which grew +4.2%yoy to RM104.5b. Also, NIM was stable at 1.93% despite the fact that there were an OPR cut in May-19. We understand that the Group had managed to reprice its deposits and released fixed deposits (FD).

Strong NOII growth. NOII (inclusive from Islamic banking) grew +15%yoy to RM1.17b. Main driver was the sustained strong trading gains, higher investment banking fees and general insurance income.

Housing and business banking led loans growth. Mortgages continued to lead gross loans growth. It grew +8.1%yoy to RM32.2b. Business banking also made a key contribution. This segment loans book expanded +11.6%yoy to RM45.5b as at 3QFY20.

Deposits declined but due to release of more expensive deposits. Deposits declined -1.0%yoy to RM105.7b. However, this was due to the release of FDs, where total FD contracted -4.4%yoy to RM81.0b. The contraction in FD came from the retail segment which fell -15.0%yoy to RM34.0b. Meanwhile, CASA grew +11.8%yoy to RM24.7b. This was attributable to the +20.2%yoy increase in non-retail CASA, to RM12.5b.

No change in earnings forecast. We are maintaining our earnings forecast for FY20 and FY21 as the result were within expectations.

Valuation and recommendation. We continue to be pleasantly surprised by the Group’s resilience in light of the challenging environment. Most surprising was the robustness of its income. Meanwhile there were some traction in gross loans growth. Taking all into consideration, we maintain our TRADING BUY recommendation. In addition, the guidance of higher dividends should provide an added incentive for investors. We should note that we expect a dividend yield of circa 5% given its current share price. Our TP remains unchanged at RM4.20 based on PBV of 0.68x.

Source: MIDF Research - 28 Feb 2020