1HFY22 net earnings of RM318.8m (+53%) came above expectations mainly due to improvements in provisioning. An interim dividend of 8.3 sen, which is also above our expectation as management applied a higher payout. The existing landscape is expected to be sustainable as the group’s exposure is positively tied with the economy recovery. With that, we increase our FY21E/FY22E earnings by 15%/18%. Upgrade to MP with a higher GGM-derived PBV TP of RM2.65 (from RM2.35).

1HFY22 beat expectations. 1HFY22 net profit of RM318.8m was better than expected, amounting to 67%/71% of our/consensus full-year estimate. This was mainly due to lower-than-expected provisions and better-than-expected cost management. An interim dividend of 8.3 sen (40% payout) was announced, which also beats our expectations. We had previously anticipated a full-year payment of 8.6 sen based on a 25% payout ratio, which we now raise to 14.0 sen. The group pays its dividends bi-annually.

YoY, 1HFY22 total income improved by 5% to RM935.9m. This was due to the 9% increase in NII being softened by an 11% decrease in NOII from weaker treasury and investment gains. Although loans base was flattish, NIMs expanded (2.53%, +24bps) thanks to a higher CASA mix (49.6%, +8.3ppt) which reduced cost of funds. Coinciding with the higher top-line, CIR eased to 41.6% (-0.5ppt) amidst higher personnel cost. Impairment allowances fell by 47% on staging improvements when compared to 1HFY21 during the early days of Covid-19. Credit cost came in at 59bps (-53bps). This translated to a 1HFY22 net profit of RM318.8m (+53%).

QoQ, 2QFY22 total income fell by 6% from weakness in both NII (-4%) and NOII (-15%) as NIMs were dented by a 4bps modification loss impact and lower fees and investment income. Far less provision was made during the quarter (-64%) as management views impairments to be well managed. Credit cost amounted to 32bps (-55bps). This supported 2QFY22 net earnings, arriving at RM172.7m (+18%).

Key briefing’s highlights. The group’s books appear well-positioned to ride the ongoing economic recovery with manageable effort to keep quality in check. TRA now makes up 33% of its total books, stable from 32% during the Aug 2021 update, which could indicate minimal provisioning risks to come. URUS could also be a non-event, with only 15 applications seen so far. From 1HFY22 performance, management upgrades its guidances for FY22: (i) NIM (>2.40%, from 2.35%); (ii) CIR (~44%, from ~45%); and (iii) credit cost (<75 bps, from <90 bps). That said, loans growth (3-4%) and ROE (>7.5%) remain, with the latter being subject to prosperity tax implications.

Post results, we raise our FY22E/FY23E earnings by 15%/18%. Our upside adjustments mainly come from less demanding impairments and more optimised operating costs. We also raise our dividend expectations from 8.6 sen/10.0 sen to 14.0 sen/15.0 sen. This comes from the abovementioned

higher earnings as well as an improved dividend payout of 40% from 25%.

Upgrade to MP with a higher TP of RM2.65 (from RM2.35). In addition to our earnings adjustments, we also tweak our GGM assumptions to arrive at a higher PBV of 0.60x (1SD below mean, from 0.54x 1.5SD below mean). We were previously cautious on the stock due to its low risk-to-reward but with the resumption of dividends to pre-Covid levels, the stock is a considerable proposition in our books. That said, it remains to have the highest SME mix amongst its peers which could be a cause of concern for cautious investors.

Source: Kenanga Research - 29 Nov 2021