FY21 PATAMI of RM8.10b (+25%) and total dividend payment of 58.0 sen are within expectations. Management is confident that the group will be at the front line of regional economic reopening. As the dominant market leader, we believe the group may struggle less with loans and deposits acquisition with sound economies of scale to ensure long-term operational sustainability. Maintain OUTPERFORM with a higher GGM-derived PBV TP of RM10.85 as we introduce and rollover to FY23E earnings.

FY21 within expectations. FY21 PATAMI of RM8.10b is within expectations, making up 105%/103% of our/consensus full-year estimates. A final dividend of 30.0 sen was declared, arriving at a full-year payment of 58.0 sen which we deem within our 56.0 sen expectations pegged on a c.80% payout.

YoY, FY21 total income inched up to RM25.45b (+3%) led by better NIIs (+14%) on the back of stronger NIMs (2.32%, +22bps) and a solid 6% loans growth. A higher CASA mix (45.4%, +4.1ppt) also eased cost of funds. That said, NOII slumped (-23%) mainly due to poorer realised and unrealised investment performances compared to the prior year. Cost-wise, CIR remained flattish as higher opex moved in tandem with income. Thanks to prudent asset management and cushioned by pre-emptive provisioning and overlays in FY21, effective credit cost registered at 49bps (-39bps) which we believe will continue to improve as writebacks are imminent. All in, FY21 PATAMI came in at RM8.10b (+25%).

QoQ, 4QFY21 total income trended up slightly (+2%) due to the same above- mentioned reasons. However, loan impairments significantly improved (-86%) sequentially as previously booked overlays proved sufficient. That said, there was a lumpy RM465m provision on unrated bonds owing to movements in staging which should not pose meaningful long-term concerns. 4QFY21 earnings landed at RM2.06b (+22%).

Key briefing highlights. Ending on a good note, management subscribes to a stronger outlook for FY22. Economic reopening would be the main push for the return of retail loans and industries that were affected by prior lockdowns. Internally, the group expects Malaysia and Indonesia to register better GDP growth in 2022 but with Singapore experiencing some normalisation. Meanwhile, asset quality will not be a major concern as even with the recent repayment assistance programs locally, only 6% of loans under relief (<1% group) missed payments. Overall, the group’s targets for FY22 reflect an overall boosted year to come. Notably, the target of 9.5-10.0% ROE inclusive of prosperity tax is encouraging. We estimate upwards of 10.5% would be achievable otherwise.

Post results, we raise our FY21E earnings by 5.7% from full-year model updates and also tweak our overall credit cost assumptions for the year. We suspect group NII could fall assuming all things being equal with deposits competition likely suppressing NIMs. Management is eyeing at least one OPR hike in 2HFY22 and this could translate to an annualised uplift of 1-2bps.

Maintain OUTPERFORM with a TP of RM10.85 (from RM10.55). As we introduce our FY23E earnings, we take this opportunity to roll forward our valuation base year on an unchanged GGM-derived PBV of 1.37x (1.0SD above mean). Despite the group’s constant dividend guidance of 40-60% payout, the group has consistently paid at 80% levels which translate to yields of 7-8%. Also, the group appears to be less interest rate sensitive, indicating that its operations have achieved equilibrium in balancing its lenders and depositors. Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes in OPR.

Source: Kenanga Research - 25 Feb 2022