KEY INVESTMENT HIGHLIGHTS

• Results were in line with expectations

• Earnings weighed down by additional provisioning set aside for Covid-19 effects. A prudent move in our opinion

• Net fund based income grew despite OPR cuts

• NIM compression was moderated by CASA deposits growth

• Asset quality remains stable

• No change to FY20/FY21/FY22 earnings forecast

• Maintain BUY with revised TP of RM5.25 (from RM5.10) as we rollover valuation to FY21

Results were in-line. The Group posted 1QFY20 earnings of RM570.9m, which was -9.4%yoy lower. Nevertheless, its performance was within expectations. It came in at 26.5% and 24.9% of ours and consensus’ full year estimates respectively.

Earnings affected by higher provisions. Main drag for the earnings was higher provisions in the quarter where it went up +58%yoy. As such, credit cost rose +12bp yoy. Nevertheless, this was mainly due to the Group setting aside an additional RM50m in provisions for Covid-19 effects. In our opinion, this was prudent given the uncertain impact of the pandemic and the movement control order (MCO). If we were to omit this, provisions would have only increased +5.8%yoy and that was due to write backs in 1QFY19.

Good net fund based performance considering OPR cuts. Net fund based income grew +4.4%yoy to RM1.26b. This was commendable given the OPR cuts seen in 1QFY20. In fact, NIM compressed -5bp yoy only. The net fund based income growth was due to stable gross loans growth. We also believe that it came from Islamic banking as Islamic banking income expanded +17.4%yoy.

NOII weighed down by treasury income. NOII fell -9.3%yoy to RM484.8m. It was weighed down by decline in treasury income which contracted -38.1%yoy to RM126.8m. It was led by -28.8%yoy decline in gains and mark-to-market in securities, to RM73.3m.

OPEX well contained. OPEX was relatively flat, marginally decreasing by -0.6%yoy. All OPEX components fell except for personnel expenses which grew +1.9%yoy to RM517.5m.

Decent gross loans growth given current climate. Gross loans grew +3.6%yoy to RM176.2b. It was driven by mortgages, SME and Singapore operations. These grew +8.3%yoy to RM90.0b, +4.6%yoy to RM20.1b and +20.2%yoy to RM14.7b respectively.

Deposits growth matching loans growth. Total deposits expanded +3.8%yoy to RM194.0b. More importantly, it was led by CASA which grew +16.4%yoy to RM53.2b, while fixed deposits declined marginally. We believe that this had moderated the effect of the OPR cuts which resulted in minor NIM compression and the net fund based income performance.

Source: MIDF Research - 1 Jun 2020