FY21 PATAMI of RM5.66b (+16%) and full-year dividends of 15.2 sen are within expectations. The group believes it is well positioned to benefit from the economy reopening. However, in the immediate FY22, earnings are hampered by the one-off prosperity tax. Maintain MP but with a higher TP of RM4.15 (from RM3.85) as we roll over our valuation base year to FY23E and tweak our GGM inputs. We believe the stock is fairly priced at current levels.

FY21 within expectations. FY21 PATAMI of RM5.66b came in within expectations, making up 102% of both our and consensus full-year estimates. A second interim dividend of 7.7 sen was declared, giving a full-year payment of 15.2 sen, which we deem closely in line with our 14.0 sen estimate on a c.50% payout (3-year historical average).

YoY, FY21 total income rose 11% to RM12.54b, led by a 17% improvement in NII which saw a 4% growth in loans base and better NIMs at 2.22% (+22bps). On the flipside, NOII declined by 7% mainly due to unrealised losses in investment assets despite better performance in fees and unit trust businesses. As income growth outpaced operating expenses, CIR narrowed to 31.6% (-3ppt) although management anticipates the need to ramp up spends in conjunction with economic reopening. Meanwhile, credit cost was slightly higher at 34bps (+1bps) as management continued to practice tight provisioning measures. Ultimately, thanks to the better top-line, FY21 PATAMI closed at RM5.66b (+16%).

QoQ, 4QFY21 total income saw a flattish decline (-1%) as NOII was particularly weak due to the same abovementioned unrealised losses in financial assets. Meanwhile, the credit cost of the period was lower at 32bps (-5bps) having several buffers already booked in previously. This helped 4QFY21 PATAMI to improve slightly to RM1.38b (+1%).

Briefing’s highlights. The group looks to reap the benefits of the progressive economic recovery, counting on a translation of 4-5% to both loans and deposits growth in FY22. That said, this is on the premise that further movement restrictions are not implemented from potential worsening of the Covid-19 situation. On the same note, asset quality risks are likely to ease as better cashflows and income could reduce repayment risks (management targets FY22 credit cost to linger at <20bps). With regards to interest margins, the intensified competition for deposits could dent profitability. Unless we see changes in OPR (3-4 bps trailing impact per 25bps), management is hopeful for stable margins as repricing opportunities are likely exhausted.

Post results, we adjust our FY22E earnings higher by 4.2% from full-year model updates. To reiterate, our anticipated effective tax to the group is 30% from the one-off prosperity tax, resulting in an earnings decline from FY21. We also introduce our FY23E numbers.

Maintain MARKET PERFORM with a higher TP of RM4.15 (from RM3.85). We make some slight adjustments to our GGM-derived PBV (now pegging at 1.49x, from 1.42x) while taking this opportunity to roll over our valuation base year to FY23E. The group’s well calculated operating measures have earned it the highest ROE in the industry. That said, this also translates to possibly less aggressive growth opportunities amongst its peers with milder dividend potential. Prospects appear fairly priced-in at current levels.

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 - 28 Feb 2022