9MFY21 PATAM of RM4.28b (+15%) is within expectations. FY21 is expected to align with management’s expectations with moratorium and URUS take-up being manageable. Economic recovery should persist throughout the rest of the year and deliver better-than-expected ROEs. Maintain MP but raise our GGM-derived PBV TP slightly to RM3.85 (from RM3.80) as we recalibrate for prosperity tax exposure in FY22.

9MFY21 within expectations. 9MFY21 PATAMI of RM4.28b came in within expectations, making up 77% of both our and consensus full-year estimates. No dividend was declared this quarter, as expected.

YoY, 9MFY21 total operating income came in 15% stronger at RM9.49b. This was mainly thanks to NII accelerating by 21% on the back of a NIMs expansion to 2.23% (+29bps) on favourable repricing of deposits on the back of a 3% loans growth. NOII fell slightly (-3%) as while fee and commission income grew by 17%, trading gains were 67% worse off. CIR improved to 31.7% (- 3.6ppt) with operating expenses only increasing by 3% with higher personnel cost. On the flipside, credit cost rose to 35bps (+13bps) with lumpy pre- emptive provisions only being made in 4QFY20. Meanwhile, the three quarters in FY21 were consistently lofty on prudent measures. Still, 9MFY21 earnings managed to come in at RM4.28b (+15%), in line with top-line.

QoQ, 3QFY21 total income declined by 4% on normalising NOII. NII declined from a NIM reduction of 8bps, accounting for modification losses during the quarter. Absent this, NIM would have been 1bps higher. That said, operating expenses saw a sequential decline in a more optimised environment while allowances eased by 18% from better loans staging (credit cost: 37bps, -8bps). However, due to the slower income, 3QFY21 PATAMI reported a slight decline to RM1.36b (-2%).

Key briefing’s highlights. Overall, management is confident that it could deliver its targets comfortably in FY22. For now, URUS applications are only a handful with further applications expected to surface in its 3 months period. That said, approved applications may not be significant, with a total impact anticipated to be less than RM100m. With a credit cost guidance remaining at around 35bps (9MFY21: 35bps), it is possible that we may see a net write- back situation in 4QFY21. Most of management’s guidance for FY21E is unchanged, with a clearer target for ROE at 12% (from at least 11%). This hinges on movement controls being less restrictive, which we believe should not shift meaningfully for now.

Post results, we adjust our FY22E earnings by 3.7% to be reflective of management’s guidance on the impact of prosperity taxes, being 80% of the group’s businesses, which we had underestimated.

Maintain MARKET PERFORM and TP of RM3.85 (from RM3.80), following the model updates above. Our GGM-derived PBV of 1.42x (1.0SD below mean) remain unchanged. We believe the stock is fairly valued at current price points, with dividend prospects expected to be moderate as compared to other large cap peers. That said, efficiency-focused investors may bank on its leading ROE, albeit affected in the short term no thanks to the one-off prosperity tax in FY22.

Risks to our call include: (i) higher/lower-than-expected margin squeeze, (ii) higher/lower-than-expected loans growth, (iii) better/worse-than-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 - 30 Nov 2021