9MFY22 PATAMI of RM1.11b (+28% YoY) beat both our and consensus estimates, with some help from tax provision reversals. With this performance, we turn more confident on the group’s fundamental sustainability in terms of earnings and operational controls. Sentiment could revert to pre-global settlement levels. Upgrade to OP (from MP) with a higher GGM-derived FV of RM3.75 (from RM3.15) on better earnings and valuations.

9MFY22 above expectations. 9MFY22 PATAMI of RM1.11b reported above our and consensus expectations, making up 91% of both full-year estimates, coming from net tax gains of RM99.9m seen in 3QFY22 which will soften the blow of prosperity tax. No dividends were declared, as expected.

YoY, 9MFY22 total income gained 4% to RM3.51b as NII gained 12% thanks to higher loans (+7%) and NIMs (1.98%, +14bps). Meanwhile, this was softened by NOII (-13%) falling short due to poorer treasury performance. Amidst higher income, operating expenses improved by 4% and resulted in a leaner CIR of 43.8% (-3.7ppt). During the period, the group locked in further loan provisions (+11%; credit cost at 83bps, +3bps) to shelter against certain accounts in the Oil & Gas space. During 3QFY22, the group saw net tax gains of RM99.9m from reversal of prior tax provisions, bringing effective tax rates for 9MFY22 to 8.8% (-9.4ppt). PATAMI closed at RM1.11b (+28%).

QoQ, 3QFY22 saw NII increasing by 9% on sequential improvements in loans (+3%) and NIMs (2.09%, +9bps) but registered some weakness in NOII, higher credit cost and tax gains, similar to the abovementioned. Mainly due to the tax credits, 3QFY22 PATAMI rose to RM403.3m (+26%).

Briefing’s highlights. The group enters 2022 with a clearer outlook ahead. For the time being, management is still confident that their PATAMI target of RM1.4b is intact with underlying business fronts performing well within their aspirations. With one quarter remaining, management recalibrates their FY22 guidance for credit cost to 72bp (from 65bps) having forewarned of risks in the Oil & Gas sector and with a slightly narrower NIM of 2.04%-2.05% (from ~2.06%) while supported by better CIR of 45% (from 48%). Previously, management expected a net impact of RM130m- RM140m from prosperity tax, which seems to have been offset by this quarter’s tax credit.

Post results, we raise our FY22E/FY23E earnings assumptions by 12.3%/10.2%. Our FY22E improvements factor in the tax credits seen in 3QFY22 which would soften the impact of the one-off prosperity tax for the assessment year 2022. On the flipside, we raised our FY23E earnings on more bullish loans growth and cost controls as we had reservations on the group’s targets (especially PBT expectations) but are now more confident on its sustainability.

Upgrade to OUTPERFORM (from MARKET PERFORM) with a higher TP of RM3.75 (from RM3.15). In addition to the raised earnings, we roll over our valuation base year to CY23E at a BVPS of RM5.28 (CY22E: RM4.98). We also peg a higher GGM-derived PBV of 0.71x (mean level, from 0.62x) as we are now more confident of the group’s long-term ROE and sustainability. The ascribed valuation is close to the pre-global settlement saga levels, which we believe is deserving given their performance and better sentiment from economic reopening angles. Thought dividend may still be wanting, we do not discount the possibility of higher payments in FY23 should headwinds desist (40% payout could translate to c.5% yield)

Source: Kenanga Research - 28 Feb 2022