9MFY21 PATAMI of RM866.3m (-21%) is deemed to be broadly within expectations but near-term earnings will be rattled by the RM2.83b settlement with the MoF which management assures can be accommodated. FY21E dividends were also scrapped. Meanwhile, 4QFY21 credit cost is expected to remain elevated from more macroeconomic overlays needed. Downgrade to MP (from OP) with a lower FY22E GGM-derived PBV TP of RM3.05 (from RM3.70).

9MFY21 broadly within. 9MFY21 PATAMI of RM866.3m is deemed to be broadly within expectations, making up 89%/84% of our/consensus full-year estimates. We were counting on 4QFY21 provisions to remain heavy which was validated during the briefing with management. During the briefing, management also addressed the RM2.83b global settlement (GS) with the Ministry of Finance which would sacrifice any dividend payments for FY21. This nullifies our previous dividend expectation of 11.3 sen (35% payout).

YoY, the group posted overall better income of RM3.40b (+5%) as NII expanded on the back of growth in gross loans (+7%) in spite of NIM dampening to 1.87% (-8bps) from the OPR cuts during the year. Meanwhile, NOII jumped 6% stemmed by better results from trading and investment-related segments of the group, benefiting from greater market volatility. Operating expenses were flattish, hence driving down CIR to 47.3% (-2.5ppt) against the higher top-line. The stronger overall performance was flipped by heavy impairments arising from the Covid-19 impacted economy. Provisioning spiked by 420%, driving an annualised credit costs to 83bps (+66bps). This translated to a 21% decline in 9MFY21 PATAMI to RM866.3m (-21%).

QoQ, 3QFY21 total income only improved 2% as NII gains of 9% from stronger NIMs (2.12%, +12bps) with better repricing of funds were met with a 14% drop in NOII as investment markets soften. PPOP came in flat as operating expenses rose slightly on higher administrative and personnel cost. While the group still provided for impairment allowances of RM257.7m, it was still lower than 2QFY21 provision by 29%. This benefited 3QFY21 PATAMI which came in at RM263.8m (+11%).

Key briefing highlights. The news of the RM2.83b GS caught the industry off guard, pinning the group for its previous involvement in 1MDB transactions. Management assured that with the GS, it would be unencumbered by the said past dealings going forward and the group has sufficient means for the settlement. This will be immediately provided for in 4QFY21 and comes at the expense of FY21 dividends. CET-1 capital is expected to fall to 11.0% from 13.5%-pre dividends owing to this. On the business-front, management guided for credit cost for FY21 to close between 80-100 bps according to previous guidance. The greater impairment for allowance to come should be directed towards the retail and O&G segments.

Post results, after incorporating the RM2.83b GS provisions to be booked in 4QFY21, we estimate for FY21 to report a LATAMI of RM1.41b, which entails a negative 245% revision. Meanwhile, we also lower FY22E earnings by 3.3% to capture slightly higher provisions expectations.

Downgrade to MARKET PERFORM (from OUTPERFORM) with a lower TP of RM3.05 (from RM3.70, previously). Our lower TP is based on a revised FY22E GGM-derived PBV of 0.51x (2SD below 5-year mean, from 0.56x) as we capture a higher risk-free rate of 3.1% (from 2.7%). We reckon there could be a negative knee-jerk reaction on the stock when its suspension is lifted this Wednesday. We believe perception for the stock should remain sour for the near term. However, we believe the development is not expected to hamper the overall business landscape of the group, hence we recommend investors to spot buying opportunities and accumulate on weakness.

Source: Kenanga Research - 2 Mar 2021