9MFY21 core PATAMI of RM3.84b (+292%) outpaced full-year expectations as credit costs were contained and with stronger non-financing income; hence, we raise our FY21E/FY22E earnings by 17%/10%. Management is confident of meeting its year-end target, save for loans growth. Headwinds may only arise if Covid-19 worsens but the buffers in place may cushion any immediate impact. Maintain MP but with a higher GGM-derived PBV TP of RM5.20 (from RM4.75).

9MFY21 above expectations. 9MFY21 core PATAMI of RM3.84b beat our/consensus expectations, making up 90%/85% of respective full-year estimates. The positive deviation was a result of lower credit cost needs, affirmed by management’s improved guidance. NOII was also better than expected, as we had anticipated for overall performance to be much lesser than the prior year owing to softer trading sentiment. No dividend was announced, as expected.

YoY, NII rose by 13% as loans gained 5%, driven by more mortgage applications from consumer banking. NIMs also expanded to 2.50% (+18bps) led by a higher CASA mix (42.8%, +2.2ppt) to lower cost of funds. Excluding the one-off revaluation gain of RM1.16b from TnG Digital, NOII grew 6% thanks for higher fee-based income and stable trading performances. Operating expenses were enlarged by 9% mainly driven by IT expenses. Meanwhile, loans provision was much better (-52%) having booked for risk sensitive accounts during prior periods. The quarter also saw a one-off goodwill impairment of RM1.22b pertaining to Thailand unit. Excluding all exceptional items, 9MFY21 core PATAMI registered at RM3.84b (+292%).

QoQ, total income declined by 6% due to softer NII (from normalising NIMs at 2.45%, -12bps) and NOII (both weaker trading and fee income). A modification loss of RM43.8m was recorded this quarter as a result of PEMULIH assistance, which would otherwise mitigate the NIMs decline by 3 bps. On the flipside, operating expenses also declined by 8% as establishment and administrative cost moderated. Additionally, allowances also came slower (-9%) due to better underlying books. Excluding one-offs above, 3QFY21 core PATAMI came in at RM1.22b (-5%).

Key briefing’s highlights. The group opines that a strong performance in FY21 will make up for the heavy shortfall in FY20, no thanks to Covid-19. The slower-than-expected take-up of loans has led management to focus on other fundamentals, i.e. ensuring existing assets remain healthy. With sufficient overlays being booked, management narrows its expected exposure for the year end to 75-85bps, from 80-90bps. PEMULIH accounts are seen to be fairly manageable with URUS applications still appearing tepid. That said, any spill- over into FY22 is not expected to be detrimental to the group, given its modest local B50 base (<12% total loans). Meanwhile, its cost synergy initiatives seem to be on track to deliver its RM300m-RM500m savings.

Post results, we raise our FY21E/FY22E earnings by 17%/10% as we make further trimmings to our impairment assumptions (88 bps/55 bps to 75 bps/39 bps). Meanwhile, we also raise our NOII numbers to reflect YTD performances.

Maintain MP with a higher TP of RM5.20 (from RM4.75). In addition to our revised earnings, we ascribe higher ROE assumptions in our GGM-derived PBV valuations, leading to an expanded 0.84 FY22E PBV (0.5SD below mean) from 0.78x. Its currently peakish CET-1 ratio of 13.9% would allow the group more considerations with its capital management, especially during times of rising uncertainties. The group’s regional exposure may yet prove to be a boon or a bane, depending on how well the respective countries could be exposed to worsening Covid-19 cases.

Source: Kenanga Research - 1 Dec 2021