KLSE market: movement is slow

In line with expectations. The Group posted 9MFY19 earnings which was in line with our and consensus’ expectations. It came in at 76.6% and 74.9% of respective full year estimates.

Earnings growth contributed by lower OPEX. The 3QFY19 and 9MFY19 OPEX fell -11.1%yoy and -9.5%yoy respectively as the benefit from the Group cost rationalisation initiatives continue to bear fruit. Personnel cost for 9MFY19 contracted -4.3%yoy to RM895.4m. The management expects that CI will be kept at below 55% level for FY19.

Weak NOII moderated by NII growth. NOII continue to be affected by the volatile market conditions, falling -2.7%yoy in 9MFY19. Main contributors for the drop were lower fee income and trading income. These contracted -5.1%yoy to RM390.9m and -35.4%yoy to RM111.6m respectively. However, the NOII weakness was moderated by NII increase of +5.0%yoy. This was despite NIM compression.

Recoveries also boosted earnings. The Group registered a lumpy recovery from several of its large corporate accounts in 3QFY19 which resulted in write backs. There were recoveries amounting to RM215.4m vs. RM97.4m in 3QFY18. We understand these were from legacy accounts.

Robust loans growth driven by targeted segments. Gross loans as at 3QFY19 grew +6.0%yoy to RM100.4b. The gross loans growth were led by mortgage which expanded +17.0%yoy to RM29.8b and SMEs

which grew +20.1%yoy to RM18.8b.

Building up buffer. Meanwhile, deposits grew at faster pace at +6.9%yoy to RM106.8b. We understand that this is to build up a liquidity buffer. CASA rose +10.5%yoy to RM22.1b coming from nonretail segment which grew +17.0%yoy to RM10.3%. Fixed deposits (FD) grew +6.0%yoy supported by the +14.8%yoy rise to RM41.0b in retail FD.

AMMB Holdings (AMMB) reported a stable net profit of RM350mil (+0.5%QoQ) in 3QFY19. Total income was lower by 6.0%QoQ in 3QFY19 despite recording an increase in net interest income (NII) by 2.0%QoQ. This was due to lower noninterest income (NOII) as a result of a volatile market and weaker market sentiment. Nevertheless, this was offset by a net write-back in impairments of RM51mil driven by large corporate recoveries. In 3QFY19, there were recoveries for 3 large corporate accounts amounting to RM150mil. These included RM100mil realised against the borrowers’ collaterals.

9MFY19 net profit of RM1.05bil (+19.0%YoY) was within expectations, making up 73.8% of consensus estimates. Preprovisioning operating profit rose by 18.2%YoY, supported by rise in NII, lower opex and net write-back in impairments of RM33.4mil. NOII for 9MFY19 declined due to weaker contributions from funds management, IB and markets businesses. With initiatives to manage cost under the BET300 programme, opex fell by 9.5%YoY in 9MFY19. This led to a positive JAW of 12.0%. 9MFY19 CI ratio improved to 51.6%. Meanwhile, credit cost continued to be benign at -0.04% for 9MFY19. ROE for 9MFY19 rose to 8.2% vs. 7.2% in 9MFY18.

Gross loans grew 4.0% on a year-to-date (YTD) basis or 5.6% annualised. It was supported by loans in the targeted segments, midcorp, retail SMEs, business banking as well as mortgages but partially offset by the continued contraction in auto loans. The group’s exposure to the real estate, construction and oil & gas sectors remained at 8.0%, 4.0% and 2.0% of its total loans respectively.

Customer deposits grew 11.0% YTD, at a faster pace than loans. CASA was up 9.0% YTD vs. the industry’s 2.0%. CASA ratio declined slightly to 20.7% but its retail CASA mix continued to hold up at 53.5%. Group LDR and loan-toavailable funds ratios were 94.8% and 80.5% respectively. LCR for financial holding company and net stable funding ratios for banking entities were all above 100.0%.

9MFY19 NIM was compressed by 5bps YoY to 1.93%. This was impacted by the rebalancing of loan portfolio and deposit mix. Gross impaired loan (GIL) ratio improved to 1.62% in 3QFY19 vs 1.72% in 2QFY19 and 1.77% in 1QFY19 (industry: 1.5%). Retail banking and investment banking’s GIL ratios remained steady at 1.32% and 0.10% respectively. Meanwhile, GIL ratios for wholesale and business banking improved QoQ to 2.18% and 1.68%. Loan loss cover including regulatory reserves rose to 116.8% as at end of 3QFY19.

As at the end of 3QFY19, capital position remained healthy with an FHC CET1 ratio of 12.0%. The group issued RM1.5bil of Tier 2 capital in 3QFY19 to strengthen its capital position. Disposal of legacy retail NPLs announced earlier has been targeted to be completed by 4QFY19, and this will be earnings and capital accretive to the group.

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