1HFY22 CNP of RM1.24b (-11% YoY) and 15.0 sen interim dividend are within expectations. The bank appears to have exceeded its loans growth target thanks to its retail strengths with credit cost management providing buffers against uncertainties. Meanwhile, capital ratios are more than adequate should headwinds unexpectedly materialise. Maintain OP and GGM-derived PBV TP of RM7.00.

1HFY22 within expectations. 1HFY22 PATAMI of RM1.24b made up 46% each of both our full-year forecast and consensus full-year estimates, which we deem to be in line. The higher tax exposure in this 1HFY22 period should normalise in the second half period. An interim dividend of 15.0 sen was declared, which we also deem in line with our full-year 32.0 sen (c.50% payout) expectation.

YoY, 1HFY22 total income fell slightly (-2%) despite NII seeing a 5% gain from stronger loans acquisition (+7%) in the retail segment. This came from NOII sliding by 24% owing to compressed brokerage income and treasury gains. That said, although operating cost was flattish, CIR increased to 45.4% (+0.9ppt) on lower income. In terms of loan impairments, provisions improved by 59% as expected credit loss concerns eased, bringing down the group’s annualised credit cost to 16 bps (-26 bps) and uplifting profit before tax by 7%. However, due to the one-off prosperity tax, PATAMI reported 11% lower at RM1.24b.

Briefing highlights. The group looks to maintain its FY22 targets, though we believe it would greatly outperform its loans growth target of 4-5%. This is thanks to continued momentum in its mortgage and auto finance segments, as well as its Singapore operation. The group opines current operating measures should keep its GIL targets to be well managed (<1.7%) but its commendable credit cost readings behind its 30 bps target could suggest more room for improvement, should macros remain intact. The group had in the recent quarter written back RM35m on specific oil & gas provisions which could suggest its readiness to loosen other specific allowances in the near term, not including general overlays which would likely be reviewed in FY23 only. In terms of its repayment assistance program, the group registered a gradual improvement to 4% of total domestic loans in July 2022 (April 2022: 5%) which are predominantly on R&R terms as opposed to deferment.

Forecasts. Post results, we adjust our FY22F/FY23F earnings by -1%/+1% on model updates.

Maintain OUTPERFORM and TP of RM7.00. Our TP is based on an unchanged GGM-derived PBV of 0.91x (COE: 10.7%, TG: 3.0%, ROE: 10.0%) on our FY23F BVPS of RM7.66. We believe the stock’s leading value proposition is its leading capital ratios (CET-1: >16%) which provides additional buffers for capital management. Additionally, the group’s prospects are fuelled by its digital banking positioning with its partner, Boost (Axiata) which is due to be launched in 2024 and could uplift sentiment with progressive developments. Meanwhile, a dividend yield of close to 6% puts the bank in the top tier amongst its peers. There is no adjustment to our TP based on ESG of which it is given a 3-star rating as appraised by us.

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

Source: Kenanga Research - 30 Aug 2022