FY21 profit of RM524.3m (-22%) and full-year dividends of 10.93 sen came below expectations. The group may gain favourably in its financing growth but may be at the brunt of the increasing competition for deposits where it may need to participate more aggressively. Downgrade to MP (from OP) with a lower GGM-derived PBV TP of RM2.75 (from RM3.20) as we tone down on the group’s long-term inputs of the time being.

FY21 below expectations. FY21’s earnings of RM534.3m came below expectations, only making up 92%/81% of our/consensus expectations. We had counted on better NIMs for the group but it registered a YoY decline instead. While no dividends were declared this quarter, the group announced a 10.93 sen payment in Dec 2021 (51% payout) but this is also below our expected 14.0

sen on a 60% payout.

YoY, 12MFY21 total income saw a flattish decline (-1%) as the 7% growth in financing was mitigated by a 9bps deduction in NIMs. Meanwhile, investment income also saw a flattish performance in a less vibrant climate. While operating expenses tipped slightly (+2%) possibly on more business activity, credit cost declined by 5bps to 34bps as a benefit from making pre-emptive bookings in the prior year. All in, together with a higher effective tax rate, FY21

net earnings came in at RM534.3m (-6%).

QoQ, total income rose by 15% to RM577.2m. All income streams gained positively in the 4QFY21 period possibly due to economy reopening driving the demand for financing added by heightened NIM trends. Still, the quarter recognised a much lumpier provisions, possibly due to a high PEMULIH take-up. This led 4QFY21 PATAMI to come in at RM79.6m (-22%).

Shifty winds in 2022. As previously guided, a credit cost target of 30-35 bps was met but we do anticipate FY22’s range to be not too far off from this level, given the group is known to be of a high retail mix. We find solace that the group has gained above-industry loans growth (+7%) but the erosion of interest margins may offset its efforts. This could be made worse with its peers calling out signs of increasing competition for deposits (particularly CASA) before Bank Negara eventually strikes an OPR hike which would then raise funding costs.

Post results, we cut our FY22E earnings by 4% on possible degradation of NIMs. While lower loan impairments would have supported earnings, FY22 had to face the brunt of the one-off prosperity tax, resulting in the 3% decline. Meanwhile, we introduce our FY23E numbers.

Downgrade to MARKET PERFORM with a lower TP of RM2.75 (from RM3.20). While we roll over our valuation base year to FY23E, we adjust our GGM- derived PBV to 0.95x (from 1.18x) as we account for some possible challenges in ROE expansion. For the time being, the bank’s identity as a sole Shariah bank may be overlooked until strong fundamental traction is met. We recommend looking for trading opportunities should volatility kick in for the stock. The group looks to host an analysts’ briefing today, its first since the completion of its restructuring exercise.

Risks to our call include: (i) higher/lower-than-expected margin, (ii) higher/lower-than-expected loans growth, (iii) better/worse-than-expected movement in asset quality, (iv) stronger/weaker capital market activities, (v) favourable/unfavourable currency fluctuations and (vi) changes in OPR.

Source: Kenanga Research - 1 Mar 2022