FY21 net profit of RM2.86b (+15% YoY) came within expectations but a full-year dividend of 50.0 sen was a positive surprise. Management is cautiously optimistic for the coming year on greater competition alongside uncertainties in the current climate. Meanwhile, credit cost buffers are well placed and associate Bank of Chengdu should still contribute meaningfully. We raise our GGM derived PBV TP to RM18.50 (from RM17.70) from beta updates. Maintain MP.

FY21 spot on. FY21 net earnings of RM2.86b came in squarely at 100% of our/consensus estimates. However, the final dividend of 35.22 sen (FY21: 50.0sen, 37% payout)) was a positive surprise above our anticipated 36.0 sen (c.25% payout) as we were concerned of tighter disbursements from ongoing macroeconomic uncertainties.

YoY, FY21 saw a 21% leap in NII following stronger NIMs (2.01%, +23 bps) alongside a larger loans base (+7%). On the flipside, NOII fell by 7% owing to forex losses. Overall, total income registered at RM5.47b (+14%). Operating expenses was mostly flattish, but the higher income led to a CIR of 38.0% (- 6.0ppt). FY21 saw much loftier provisions, accounting for most parts since the commencement of the maiden MCO, thereby coming in 99% greater with higher impairments and overlays by management. This translates to a credit cost of 43 bps (+20 bps), which is above management’s initial target of 30 bps as they took the prudent step for more pre-emptive provisions ahead of July 2021. 18%-owned associate, Bank of Chengdu continued to contribute meaningfully to the group and growing its contribution to RM736.0m (+15%). Cumulatively, PATAMI came in at RM2.86b (+15%).

QoQ, 4QFY21 total income declined slightly to RM1.33b (-4%) mainly due to lower NOII dividend income. Additionally, impairment allowances expanded by 70% as the group frontloads on potential risks from the reimplementation of lockdown measures and slower-than-expected economic recovery. All in, 4QFY21 net profits amounted to RM689.5m (-11%).

Key briefing’s highlights. Management is cautiously optimistic with the coming year, citing concerns of more aggressive competition for both loans and deposits market share, leading on to some NIM compression. On the flipside, the group could be well guarded against its loan portfolios becoming increasingly risky from unsustainable business environments with ECL buffers of RM730m for the quarters to come. Its PRAP proportion stands at 21% of loans, no thanks to the PEMULIH scheme in July 2021 (from only 7% in April 2021). However, management is not overly concerned due to certain applicants only opting in for liquidity purposes. With regards to the Bank of Chengdu, management believes that it will continue to perform favourably, partly thanks to the more relaxed economic landscape there as opposed to locally. Management is still deciding on the proportion of its RMB8.0b convertible bond to subscribe, but reckons that some dilution from not undertaking its full 18% stake will still see meaningful returns.

Post results, we tweak our FY22E earnings by 2% from model updates. We also introduce our FY23E numbers.

Maintain MARKET PERFORM with a higher TP of RM18.50 (from RM17.70). As we relook our beta factor for HLBANK, we raise our GGM-derived CY22E PBV of 1.10x to 1.17x (1.0SD below mean). The stock appears to be navigating through macroeconomic challenges resiliently with effective strategies that have kept its ROE stable throughout. However, at current price points, despite better dividend payouts, it still leaves the market wanting for more. Hence, we recommend accumulation only on weakness when potential capital gains are 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 Sept 2021