FY21 PATAMI of RM526.9m (+129%) and dividend of 12.5 sen came far better than expected as we had underestimated the group’s loans growth potential and pending writebacks on provisions. Assuming the group is able to maintain this momentum, it should be able to achieve its RM1b PBT aspirations. We believe investors may flock to this stock just for its newly found dividend proposition. Upgrade to OP (from MP) with a higher TP of RM2.10 (from RM1.65) on better GGM inputs and earnings.

FY21 surpassed expectations. FY21 reported PATAMI of RM526.9m which was much better than expected, consisting of 127%/119% of our/consensus expectations. The positive deviation on our part was mainly due to the wider-than-expected loans growth and lower-than-expected impairments thanks to writebacks in 4QFY21. The group also announced a final dividend of 12.5 sen which also beat our expectations, based on a 50% payout last seen in FY14. We had earlier expected a 30% payout translating to 5.0 sen/share.

YoY, FY21 total income was flattish (-1%) as higher NII (+16%) on the back of a big loans portfolio (+11%) and NIMs (2.08%, +13 bps) was offset by NOII (- 27%) suffering from poorer trading gains. The much lower recognition of modification losses (-93%) also helped. The year saw a much lower credit cost exposure (36 bps, -77 bps) stemming from better customer payments and staging, in line with the economic reopening in addition to prior pre-emptive provisioning. It is mainly due to this that FY21 PATAMI more than doubled at RM526.9m (+129%).

QoQ, 4QFY21 total income grew by 5% as NII (+11%) performance outweighed the weakness in NOII’s (-9%) treasury assets. The quarter reported a net writeback of RM3.8m, which helped draw a larger difference in comparable earnings. But also thanks to the much lower effective tax rate in 4QFY21, earnings came in at RM206.8m (+55%).

Ending the year with a bang. The group had previously laid out highly ambitious targets which seem they are close to delivering, namely to achieve RM1b in PBT. Seeing solid success in their community banking arm, this will likely be the driver of loans growth at least in the immediate year. Meanwhile, the group’s digital banking proposition was introduced as a means to capture more deposits to lower their cost of funds, hopefully translating to wider margins. In FY22, we should also see the completion of its joint venture in Generali and disposal of its asset management arm, both which look to unlock value meaningfully for the group.

Post results, we raise our FY22E earnings by 29% mainly to clock in higher loans and fee-based income growth. We also narrow our credit cost assumptions in anticipation for more writebacks from the group. This puts our FY22E numbers closely in line with management’s RM1b PBT ambition. Meanwhile, we also introduce our FY23E numbers. Management will be hosting an analysts’ briefing later in the day.

Upgrade to OUTPERFORM (from MARKET PERFORM) with a higher TP of RM2.10 (from RM1.65). We roll over our valuation base year to FY23E which earmarks a higher BVPS of RM5.04. In addition, given the stronger earnings traction expected, we also raise our GGM inputs to ascribe a higher PBV of 0.42x (from 0.34x, 0.5SD below mean). Though the group has a reputation of being the lowest ROE provider, we reckon investors would not mind if the management could assure consistency in dividend payments (we also raise our payout expectations to 40% which translates to a 6.2%/7.3% yield).

Source: Kenanga Research - 1 Mar 2022