1HFY22 net earnings of RM1.60b (+14%) came above our expectation as the period’s financials were broadly better. The group seems to be holding well in the current climate with its past measures softening the need for stringent provisioning. Dividend prospects might still not be as exciting for now. Maintain MP but raise our TP to RM19.70 (from RM18.20) as we roll over our valuation base year and incorporate higher earnings per the updated guidance.

1HFY22 above expectations. 1HFY22 net profit of RM1.60b came in above our expectation (58% of full-year estimates) but deemed within consensus (53%). We see the positive deviation to be a cumulation of: (i) slightly higher- than-expected loans growth and NIMs, and (ii) lower than expected credit cost. Management provided clearer guidances on these items. An 18.0 sen interim dividend was declared, which we deem to be within expectations as 2H payments are usually lumpier.

YoY, 1HFY22 total income was flat amidst a 10% growth in NII (driven by loans base expansion of 7% and better NIMs of 2.02%, +5bps) being offset by NOII (- 32%) being dragged by weaker trading performances. While operating expenses tapered off slightly (-1%, CIR 37%), annualised credit cost saw a drastic improvement at 10bps (-37bps) on improved operating environment for businesses and individuals. Meanwhile, 18%-owned associate, Bank of Chengdu continued to contribute meaningfully to the group (+40%) from better loans and operating performance. 1HFY22 earnings hence came in at RM1.60b (+14%).

QoQ, 2QFY22 total income saw the same movements as mentioned above but reported a higher tax exposure, being tax provisions of RM129m made in relation to the one-off prosperity tax. Excluding this amount, 2QFY22 PATAMI would have come in at RM868m (+1%).

Briefing’s highlights. Optimistic with the group’s near-term outlook, management sought to refine its FY22 guidances. Loans growth seems to be able to continue its traction in the mortgage space, likely as more consumers are to capitalise on the low interest rate environment before a pending OPR hike. At the meantime, NIMs are expected to expand on the back of higher CASA ratios (33.3%, +3.5ppt) to ease the cost of funds. With economic reopening appearing to sustain, the improvements in staging is likely to reduce provisioning burdens.

(refer to the overleaf of the revised guidance numbers)

Post results, we raise our FY22E/FY23E earnings by 9.0%/19.1% mainly to reflect the improved abovementioned guidances. Meanwhile, wider gains in FY23E are expected as we recalibrate its prosperity tax exposure to only impact FY22E. In line with the increase in earnings, we also raise our dividends to 56.0 sen/68.0 sen (from 55.0 sen/58.0 sen) on a 40% payout,

Maintain MARKET PERFORM with a higher TP of RM19.70 (from RM18.20). In addition to the higher earnings, we also roll over our valuation base year to CY23E which commands a BVPS of RM16.90. Our applied GGM-derived PBV stands at 1.17x (1.0SD below mean). The stock continues to be well position in the market with the lowest GIL ratio and highest LLC. However, its soft dividend outlook and high price points may be undermining its liquidity.

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 - 1 Mar 2022