1QFY21 PATAMI of RM68.9m (-44%) came within our expectation, but below consensus likely on more optimistic top-line projection. Challenges from the occurrence of MCOs during the quarter led to some setbacks in product execution. That said, it will continue to prioritise securing quality assets for its books and enhance its recurring revenue streams. However, we are cautious over easing of NOII in subsequent quarters. Maintain UP and GGM-driven TP of RM1.35.

1QFY21 came in within our expectation but below consensus, as the reported PATAMI of RM68.9m made up 20%/17% of respective estimates. The negative deviation from consensus could be due to more optimistic income assumptions and softer impairment exposure. No dividend was declared as expected. The group typically pays its dividends once per year.

YoY, 1QFY21 total income fell by to RM537.6m (-14%). NII improved by 10% on the back of a higher loan base and healthier NIMs of 1.95% (+10 bps) with lower cost of funds but this was mitigated by a 35% dip in NOII, stemming from significantly softer treasury gains seen in 1QFY21. CIR came in higher at 63.3% (+11.0ppt) with operating expenses rising by 4% on higher personnel costs coinciding with the lower top-line. This led to a 34% weaker PPOP.

On the flipside, impairments were 20% lighter thanks to the earlier heavy frontloading in 4QFY20 on prudent provisioning against prolonged uncertainties from the Covid-19 pandemic. This translated to improved credit cost of 53.0 bps (-54.0 bps) but more non-performing loans led to a higher GIL of 3.4% (+0.3ppt). 1QFY21 PATAMI came in at RM68.9m (-44%).

QoQ, 1QFY21 total income was 13% weaker no thanks to a decline in NII as NIMs eroded and NOII on softer fees. That said, as the group had incurred lumpy provisioning in the prior quarter as mentioned, PATAMI was lifted 836% from losses of RM9.4m. Credit cost eased to 53 bps from 201 bps.

Keeping in check amidst uncertainties. The MCOs implemented during the year have caused further economic disruption and put a pin on some of the group’s plans, which include a digital app aimed to be more engaging to consumers and drive transactions. While this is likely to materialise in the latter half of the year, the group is confident with its asset quality control measures to keep income sustainable. That said, management is still being prudent with its provisions in the event more overlays are required for Covid- 19 implications. Near-term emphasis remains building up its sustainable fee- based income to be less dependent on volatile trading gains. Management maintains its guidance for FY21, subject to developments in 1HFY21.

Post-results, we tweak our FY21E/FY22E earnings by -0.4%/-0.2% on model updates.

Maintain UNDERPERFORM and TP of RM1.35. Our TP is based on a FY22E GGM-derived PBV of 0.28x (2SD below 5-year mean). The stock is typically known as the least exposed in financing risks due to its higher NOII mix against its peers, but given the expectations of a normalising trading landscape, this segment could be at threat until the group is able to gain substantial growth in its NII to make up for it. In the meantime, ROE and dividend yield leave much to be desired against its peers.

Risks to our call include: (i) lower-than-expected margin squeeze, (ii) higher- than-expected loans growth, (iii) better-than-expected improvement in asset quality, (iv) stronger capital market activities, and (v) favourable currency fluctuations. EBITDA: medium single digit decline (flat-low single digit decli

Source: Kenanga Research - 27 May 2021