1HFY22 net profit of RM200.5m (-57% YoY) is deemed as within our expectation on anticipation of a lumpier 2HFY22 reporting. The group may be short in achieving its financing growth targets but may compensate via investment in technology efficiency in thenear-term. Although current yields appear attractive, we are wary of headwinds creating pressure that could impede sentiment. Maintain UNDERPERFORM and GGM-derived PBV TP of RM0.51, pending further updates from today’s results briefing.

1HFY22 within our forecast but missed consensus. 1HFY22 net profit of RM200.5m is deemed to be in line with our full-year forecast but a miss to consensus. Although it only makes up 40% and 32% of the respective numbers, recall that 1QFY22 was dragged by provision which is expected to normalise. Hence, we anticipate subsequent quarters to mirror 2QFY22. No dividend was declared as expected, given the group’s trend of single payments.

YoY, 1HFY22 total income tapered down (-2%) as key net Islamic income only saw flattish gains (+1%) following NIMs erosion (3.16%, -25bps) possibly from higher repricing of deposits against moderate financing growth (+3%). Following this, net interest income plunged (-91%) from a shift in portfolios while NOII fell by 62% from unfavourable trading sentiment. Operating costs also grew on higher technology spend, causing CIR creeping up to 37.0% (+11.5ppt). In terms of provisions, 1HFY22 saw total impairment allowances of RM212.0m against a net writeback of RM45.5m in 1HFY21. This led to the large decline in operating profit by 56%, translating the period’s net earnings to report at only RM200.5m (-57%).

Tough road still present. While we await for the group’s results briefing later today, headline numbers indicate there could be challenges for the group in achieving its 10-11% financing growth target (YTD: 2.8%). Given its higher retail base which could be more sensitive to rate hikes, the group may see headwinds amidst the ongoing rising rate environment. This is further dampened by the group’s expectations for NIMs erosion with every hike, possibly due to its unfavourable proportions in fixed and variable rate products. Meanwhile, while the group appears to have successfully ended its repayment assistance programs, its higher GIL ratio (6.9%) could be indicative of concerns in other accounts (possibly corporates).

Forecasts. Post results, our FY22F earnings are tweaked by +1% on model updates, pending further updates from today’s briefing.

Maintain UNDERPERFORM and TP of RM0.51 for now. Our TP is based on a GGM-derived PBV of0.39x(COE:12%, TG: 3%, ROE:6.5%) on our FY23FBVPS of RM1.30. Although the stock’s dividend prospects might appear attractive at 6- 7%, the concern of further earnings disappointments is weighing down sentiment and capital returns for the stock. Investors may be keenly following the stock for its potential acquisition of Malaysian Industrial Development Finance Bhd (MIDF) but little is established on the deal as of now.

Risks to our call include: (i) lower-than-expected margin squeeze, (ii) higher-than-expected loans growth, (iii) slower-than-expected deterioration in asset quality, (iv) further gains in capital market activities, (v) favourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 26 Aug 2022