FY21 core PATAMI of RM940.5m (-30%) came below our expectations as we had underestimated the impairment provisions for the year. The group is taking steps to regain its position post Global Settlement with strategies in place to compete against market headwinds. However, dividend outlook is still an uncertainty to us. While we trim our FY22E earnings by 4.5%, we maintain UNDERPERFORM and a slightly higher TP of RM2.45 (from RM2.40) as we roll over to CY22E.

FY21 missed expectations. FY21 LATAMI was reported at RM3.83b. Excluding 4QFY21 one-off items such as: (i) RM2.83b global settlement amount, (ii) RM1.79b impairment of goodwill, and (iii) RM147.8m impairment of associate, core PATAMI amounted to RM940.5m. This is a miss against our estimate, only making up 66% of our core PATAMI estimated on the same adjustments. The negative deviation on our end was due to under-estimation of loan provisions despite management overlays already factored in at 3QFY21. We are unable to ascertain if consensus estimates have accounted for the adjustments. As guided by management previously, no dividends were declared for FY21.

YoY, total income rose to RM4.51b (+7%). NII increased by 2% mainly due to the 5% growth in gross loans supporting the decline in est. NIMs at 1.86% (-8 bps). Meanwhile, NOII came in stronger (+17%) from more favourable trading and investment performances alongside better fee income. Not accounting for the one-off global settlement charge of RM2.83b, operating expenses were flattish but CIR came in at 47.3% (-2.5 ppt) thanks to top-line growth. On the flipside, credit cost soared to 105 bps (+73 bps) owing to heavy impairments and management overlays arising from Covid-19’s impact to asset quality. Total impairments came in at RM1.16b (+250%), not including one-off impairments to goodwill and associates. Overall, FY21 core PATAMI came to RM940.5m (-30%).

QoQ, 4QFY21 total income came in weaker by 3% on lower NII as est. NIMs tapered off from softer wholesale and retail banking spreads. That said, NOII was lifted 11% mainly thanks to forex gains. The group booked higher impairments during the quarter at RM492m (+88%) which included RM304m management overlays for macro-economic factors. This is likely the result of movement controls during the quarter. This translated to 4QFY21 core PATAMI of RM74.2m (-72%), not including the mentioned one-off items.

Key briefing’s highlights. Moving away from the Global Settlement saga, management is confident that is has the means to rebuild its capital internally and looks for a CET-1 of 12.5% for FY22. Fundamentally, its ECL has remained rather manageable (4QFY21: RM115m, GIL 1.6%) with a large management overlay of RM745m booked and available to buffer any expanded risks from prolonged movement controls. On another note, identified target segments of retail, SME and business banking will be the focus of the group going forward which will be assisted by further automation. Key KPIs for FY22 were introduced, being: (i) NIMs of 1.90-1.95%, (ii) credit cost of c.50 bps, (iii) ROE of c.9%, and (iv) CIR of c.48%.

Post results, we trim our FY22E earnings by 5% mainly on higher credit cost assumptions (49 bps from 42 bps) to be close to management’s guidance. We also introduce our FY23E numbers.

Maintain UNDERPERFORM but with a slightly higher TP of RM2.45 (from RM2.40), as we rollover our valuation to CY22E’s BVPS of RM4.92/share on an unchanged 0.5x GGM-derived PBV (2SD below mean). We are still cautious of the stock on its impairment risks going forward. In addition, as management looks to rebuild its capital base post-Global Settlement, there is an uncertainty on its dividend outlook. For now, our c.25% payout (below historical low of 30%) could fetch c.3% yields. The group may also require time to regain its strength in ROE.

Source: Kenanga Research - 1 Jun 2021