FY21 net earnings of RM438.7m (+63%) came below expectations as modification loss exposure remained heavy. That said, recent financing growth performance also leads us to be milder with our projections. Still, the stock seems to offer strong dividend prospects with FY21 dividend of 3.0 sen beating our expectation, but capital downside risk is a greater caution for now. Downgrade to UP (from MP) with a lower GGM-derived PBV TP of RM0.500 (from RM0.540), pegged on a newly introduced FY23E numbers.

FY21 missed expectation. FY21 net profit of RM438.7m was below expectations, merely making up 63%/67% of our/consensus estimates. The negative deviation was due to continually wide exposure to modification losses in 4QFY21 and also failure to generate loans growth. That said, a 3.0 sen dividend paid out in December 2021 is above our 2.4 sen expectations.

YoY, FY21 total income rose to RM1.34b (+4%) as despite financing income registering an overall flattish performance, the group saw softer modification losses (-38%) during the year. Meanwhile, operating expenses picked up (+24%) on higher manpower and technology spend. Ultimately, it was the significantly improved credit cost (24bps, -89bps) that propelled FY21 PATAMI by 63% to RM438.7m. The lower impairment charges were thanks to write- backs of prior pre-emptive measures.

QoQ, 4QFY21 total income fell by 21% from diminished performance across all revenue streams. That said, due to the quarter registering strong writebacks from improved staging of customer books, 4QFY21 earnings came in positive at RM76.5m from a LATAMI of RM104.6m in 3QFY21.

Briefing highlights. Against its previous FY21 guidance, management beat its initial credit cost guidance of 45-50bps at 24bps and met its <5% GIL target at 4.6%. However, it missed the 3-4% financing growth target with a flattish performance. Going into FY22, the group looks to accelerate its books by aggressively targeting more business sectors, namely e-commerce/SME retailers, energy, manufacturing, and construction. The group also aims to be more involved in the takaful space with collaborations along the way to boost income streams. The above is aspired to alleviate the group’s high GIL trait, counting that greater exposure in this space could ease the group into <3% levels.

Post results, due to the earnings disappointment; we slash our FY22E earnings by 22% as we reflect a more modest financing growth at 4-5%, which is below management’s earmarked 10-11% for having missed the 3-4% target for FY21. Meanwhile, we introduce our FY23E numbers.

Downgrade to UNDERPERFORM (from MARKET PERFORM) with a lower TP of RM0.500 (from RM0.540). While we maintain our GGM-derived PBV of 0.38x (1.5SD below mean), we roll forward our valuation base year to FY23E which BVPS is below our pre-results FY22E BVPS of RM1.42. Although dividend prospects might appear highly attractive at 6-8% from a historical payout average at 45%, it is outweighed by our anticipated capital downside risk. We recommend collecting at weakness lest there are further earnings disappointments.

Risks to our call include: (i) lower-than-expected margin squeeze, (ii) higher- than-expected loans growth, (iii) slower-than-expected deterioration in asset quality, (iv) further gains in capital market activities, (v) favourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 25 Feb 2022