1QFY22 PATAMI of RM1.43b (+7%) came better than expected due to writebacks knocking off our credit cost expectations. Management will continue to optimise and focus on key growth areas ahead of its initial FY22 targets, which we deem to be achievable at our current perspective. We raise our FY22E/FY23E earnings by 7%/6% to be reflective of an overall lighter provisioning needs. Maintain OP with a higher GGM-derived TP of RM5.70 (from RM5.65).

1QFY22 above our expectations but within consensus, as the core PATAMI of RM1.43b made up 32%/29% of respective full-year estimates. The positive deviation on our part was due to lower-than-expected credit costs arising from credit-related writebacks seen during the period. No dividend was declared as expected, as the group typically pays out biannually.

YoY, 1QFY22 NII gained 2% as group-wide loans (+5%) grew across most regions except Thailand while seeing NIMs shedding slightly at 2.47% (-6bps) mainly from heightened competition in Indonesia. CASA mix remained lofty at 45.3% (+2.3ppt). Stripping off the one-off revaluation gain of RM1.16b from TnG Digital in 1QFY21, NOII declined by 11% as trading income and fee-based streams operated in a less vibrant landscape. Management booked further provisions (RM320m) during the period, but this was less detrimental than the preceding period when pandemic buffers were amassed. Also thanks to write-backs due to legacy accounts in Singapore, credit cost came in at 34 bps (-47bps). Despite higher effective taxes due to the one-off prosperity tax, 1QFY22 core PATAMI still closed 7% higher at RM1.43b.

QoQ, both NII (+1%) and NOII (+13%) expanded from the prior period, although the former mainly benefitted from a larger loans portfolio. Thanks to seasonally lower operational spending (-7%) and credit cost (-50bps) being sequentially softer due to the abovementioned writebacks, 1QFY22 core PATAMI came in 76% stronger against 4QFY21.

Briefing highlights. Following its earnings delivery, management maintained their targets for FY22 as we believe it allows sufficient growing space for the group to sustainably transition to its Forward23+ goals. The group’s repayment assistance mix stands at 5% as of Apr 2022 (Feb 2022: 9%) with key improvements coming from Malaysia home grounds. While the group has already made writebacks for accounts that have fully settled their financing obligations, we opine that graduated repayment assistance profiles would still undergo close monitoring to ensure long-term sustainability (>6 months). Hence, major writebacks are still not expected in FY22. Meanwhile, the group is fully cautious of its exposure in the oil & gas space with the incurrence of RM83m specific provisions topped up showing that they are mindful of possible developments. The group’s CASA mix remains steadily high across its key regions but we suspect this may taper off as interest rates hike further and consumers migrate to higher yielding fixed deposit products.

Post results, we raise our FY22E/FY23E earnings by 7%/6% to reflect a more optimistic provisioning outlook per management’s expectations.

Maintain OUTPERFORM with a higher TP of RM5.70 (from RM5.65). Our TP is based on an unchanged GGM-derived FY23E PBV of 0.88x (mean valuations). We believe current price levels may present a buying opportunity for the stock with the softer sentiment arising from the recent MoneySend issue which bears no long-lasting implications to the group, given that remedial measures are being implemented. The stock still registers the strongest YoY EPS improvement amongst its peers (31% vs. 20%). A FY23 dividend return of 6% could be tempting to yield seeking investors.

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 Jun 2022