KEY INVESTMENT HIGHLIGHTS

• Results was in-line with expectations

• Net profit declined from high credit cost

• Credit cost moderated in 3QFY20

• NOII contributed to income growth, coming from higher treasury and investment income

• Strong loans and deposits growth

• Revising FY21 earnings forecast downwards to take into account of the possibility of another OPR cut

• Maintain TRADING BUY with revised TP of RM2.70 (from RM3.35)

In-line with expectations. The Group's 9MFY20 earnings of RM326.2m was within expectations. It came in at 74.4% and 72.2% of our and consensus' full year estimates respectively.

Earnings declined from high credit cost... Net profit for the group fell -23.4%yoy. While PPOP was flattish at +0.9%yoy, provisions continued to be a drag.

.. but credit cost moderated in 3QFY20. Provisions (including bond impairment) in 9MFY20 continued to be high, but we observed it had moderated in 3QFY20 where it fell -45.8%qoq. This was due to recoveries of 2 legacy corporate accounts and write-backs from several commercial accounts. There was also improved collection efforts from pre-Jun'18 Alliance One Account (AOA). The 9MFY20 net credit cost was 49.5bp well within the management's guidance of 55-60bp.

NOII main contributor of net income growth. NOII (including Islamic banking base) grew +18.9%yoy to RM271.8m in 9MFY20. The growth was due to higher treasury and investment income, where there were RM12.2m gain from sale of government bonds. Despite lower economic activities, client based income grew +2.3%yoy.

NII relatively flat from NIM compression. NII (including Islamic fund based income) was relatively flat with -0.1%yoy to RM988.8m. Positive impact from normal growth and better asset were moderated by NIM compression.

Gross loans saw robust growth. Gross loans grew +5.5%yoy to RM43.5b. The contributors were AOA, personal loans and SME loans book. The post-June'18 AOA accounts saw an addition of RM1.9b. As for the SME loans book, it expanded +10.6%yoy to RM9.3b.

Strong growth from customer deposits. Customer based funding grew +8.9%yoy to RM47.1b. More importantly, CASA showed strong expansion of +7.6%yoy to RM17.4b, which would moderate compression pressure to NIM given that there could be another OPR cut following Jan-19 cut. The CASA growth mainly came from Alliance SavePlus (+RM1.3b yoy) and Alliance@Work payroll (+RM206m yoy).

Uptick in GIL ratio from R&R accounts. GIL ratio went up +0.3%-pt to 1.8%. The main attributor was restructured and rescheduled accounts.

Source: MIDF Research - 2 Mar 2020