KEY INVESTMENT HIGHLIGHTS

• Normalised earnings within expectations

• Normalised net profit growth from robust income growth

• NII resilient despite NIM compression, supported by loans growth

• OPEX increase from investments but likely to normalise

• Robust growth in deposits

• Final dividend of 12sen; full year dividends 26sen

• No change to FY20 and FY21 earnings forecast

• Maintain BUY with revised TP of RM5.70 (from RM6.30)

Normalised earnings within expectations. The Group reported FY19 normalised earnings of RM5.01b which was within ours and consensus' expectations. It came in at 100.5% and 100.9% of respective full year estimates. The normalised earnings for FY19 and FY18 excludes transformational cost, write off of intangible assets and and gains from divestments.

Normalised net profit growth due to income growth. Normalised net profit grew +7.7%yoy supported by total income growth of +8.2%yoy. Both NII and NOII had robust growth, with +6.3%yoy and +12.9%yoy respectively. NII expansion was driven by loans growth while trading and fx income.

NIM compression moderated by loans growth. There was marginal NIM compression of -4bp yoy due to Malaysia and Thailand, while Indoesia NIM improved. The NIM compression was moderated by gross loans growth where it grew +6.7%yoy to RM369.5b. Main contributor was consumer banking and wholesale banking which rose +9.0%yoy to RM184.9b and +7.2%yoy to RM119.1b respectively. Based on geography and excluding fx fluctuations, Malaysia saw loans growth of +6.0%yoy and Thailand was +6.1%yoy. Meanwhile in Indonesia and Singapore grew +3.0%yoy and +3.7%yoy respectively.

Rise in normalised OPEX due to investments. Reported OPEX grew +14.4%yoy to RM1.64b due to one-off transformational cost which includes the MSS cost in Indonesia. Normalising these costs, OPEX grew +9.8%yoy driven by investments and Forward23 related expenses. Admin & General cost saw cost increasing +17.1%yoy to RM1.68b, and personnel cost rose +9.6%yoy to RM5.4b. We noted that the underlying OPEX rose at a more manageable 4.2%yoy.

Slight uptick in GIL ratio but manageable. GIL ratio as at 4QFY19 went up by +3bp yoy to 3.1%. Loan provisions rose +14.5%yoy mainly contributed by Indonesian corporate. However, credit cost of 0.44% was within guidance.

Robust growth in deposits. Group deposits rose +5.8%yoy to RM401.7b. Again, consumer banking and wholesale banking were the main contributors to the growth. It grew +8.9%yoy to RM179.0b and +4.5%yoy to RM157.0b respectively. CASA had solid growth as highlighted by the increase of CASA ratio to 34.4% from 32.7% as at 4QFY19.

Source: MIDF Research - 2 Mar 2020