FY21 earnings of RM358.8m (-15%) and dividend of 5.79 sen declared are within expectations. The group is going into the new MCO with a leaner operating structure and equipped with digital strategies. We are neutral on the stock for now as we believe the risk-to-reward is fairly balanced by its asset quality exposure and dividend prospects. Upgrade to MP with a higher GGM-derived PBV TP of RM2.40 (from RM2.30).

FY21 within expectations. FY21 net profit of RM358.8m is within our expectation but missed consensus, making up 100% and 94% of respective estimates. The negative deviation from consensus could be owing to softer estimate for provisions for 4QFY21. A final dividend of 5.79 sen (25% payout) was declared, which is closely within our 6.0 sen expectation.

YoY, FY21 total income registered at RM1.82b (+8%) mostly thanks to better NOII performance from gains on investments. NII inched up by 3% from a slightly higher loans base (+1%) amidst lower NIMs of 2.35% (-5 bps). Operating costs came in slightly lower (-1%) on fewer personnel, leading CIR to improve to 44.1% (-3.7ppt) and PPOP improvement of 15%. However, heavier impairment allowance of RM532.9m (+95%) was provided, due to delinquencies and management overlays stemming from the Covid-19 pandemic. Credit cost for the year came in at 121 bps (+50 bps) while GIL worsened to 2.3% (+0.3ppt). All in, this led to FY21 earnings to report at RM358.8m (-15%). On another note, CASA-to-deposit was at an all-time high of 47.0% (+9.6ppt) given the demand for cash liquidity.

QoQ, 4QFY21 total income chipped off 6%. Although NII came in stronger by 5% thanks to better NIMs (2.49%, +15 bps), NOII declined by 38% from much softer investment gains. Operating expenses kicked up by 21% as more personnel were hired. The group continued to book heavy provisions during the quarter but was still 9% less than 3QFY21’s (credit cost: 125 bps, -14 bps). Overall, 4QFY21 net profit closed at RM50.1m (-50%)

Key briefing’s highlights. Going into FY22, management lays its eyes into expanding its presence in the SME segment which could be poised for recovery in the medium term when vaccination rates pick up and economic activity recovers. Digital acquisitions will be a main front to this target, hoping to also improve customer experience. With a higher adoption rate of digital infra-structure, management also hopes that it could enable more lean office branches that can operate without back office functions. At the meantime, management is not overly concerned of asset risks from its AOA program amidst further movement controls as it has sufficient impairments buffer. Meanwhile, the group is ready to continue providing targeted assistance to new and existing accounts. New guidance for FY22E are: (i) gross loans growth of 3-4%, (ii) NIM of c.2.35%, (iii) CIR of 45-46%, (iv) credit cost of <90 bps, and (v) ROE of >7.5%.

Post results, our FY22E earnings are tweaked slightly from model updates. Meanwhile, we also introduce our FY23E numbers.

Upgrade to MP (from UP) with a higher TP of RM2.40 (from RM2.30). Our TP is based on a rolled over CY22E GGM-derived PBV of 0.54x (1.5SD below mean). We believe the stock is fairly priced for now, given its trough valuations is reflective of its exposure to riskier assets. That said, assuming that this front is well managed, its high CASA mix could translate to further widening of margin to the group to spring positive earnings surprises. We recommend to only accumulate on weakness, when dividend prospects could also be more favourable.

Risks to our call include: (i) higher/lower-than-expected margin squeeze, (ii) higher/lower-than-expected loans growth, (iii) better/worsethan-expected deterioration in asset quality, (iv) improvement/slowdown in capital market activities, (v) favourable/unfavourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 1 Jun 2021