1HFY22 PATAMI of RM2.82b (-3% YoY) and 8.0 sen interim dividend are within expectations. The group’s leading position continues to keep it steady against possible headwinds arising from unfavourable macros. Better guidances on NIMs and credit cost on a full-year basis bodes well which could uplift 2HFY22 performance. Maintain MP and GGM-derived PBV TP of RM4.65, after applying a 5% ESG premium.

1HFY22 within expectations. 1HFY22 PATAMI of RM2.82b made up 49% and 48% of our full-year forecast and consensus full-year estimates, respectively. An interim dividend of 8.0 sen was declared, which we also deem in line with our full-year 15.5 sen (c.50% payout) expectation.

YoY, 1HFY22 total income fell slightly (-2%) due to NOII (-15%) coming off from poorer unit trust sales and trading performance. On the flipside, NII saw a 2% improvement led by a 5% growth in the group’s loans book. Owing to the lower topline and higher personnel and administrative expenses, CIR inched up to 33.5% (+1.9ppts). However, as provisioning needs saw a drastic improvement and credit cost recording at 10 bps (-24 bps), profit before tax marked a 6% increase. That said, no thanks to higher effective taxes from prosperity tax, 1HFY22 PATAMI came in at RM2.82b (-3%).

Briefing highlights. There could be headwinds in terms of unfavourable inflation projections that may impede economic activity. Nonetheless, the group remains optimistic that it could deliver its aspired 5% loans and deposits growth targets for FY22, driven by the resiliency of its high retail profile. In terms of its repayment assistance mix, July 2022 readings sustained at 6% from April 2022 but it holds at a manageable level as only 5% of these accounts have missed recent payments. With improvements in the financing and deposits mix coupled with recent OPR hikes, NIM’s outlook for the group has improved to a more confidently guided range of 8–10 bps improvement by year-end. In terms of asset quality, the group’s tight controls have yielded a high asset quality landscape, warranting the group to update its FY22 credit cost guidance to 10-15 bps (from <20 bps), being the second lowest amongst its peers.

Forecasts. Post results, we tweaked FY22F earnings by +0.5% on model updates.

Maintain MARKET PERFORM and TP of RM4.65. Our TP is based on an unchanged GGM-derived PBV of 1.58x (COE: 9.7%, TG: 4.0%, ROE: 13.0%) on our FY23F BVPS of RM2.81. On top of that, we applied a 5% premium to our TP based on our 4-star ESG rating, led by the stock’s strong green financing pipeline. The group commands the highest ROE amongst its listed banking peers. However, we believe this is already priced in at current levels given its moderate dividend potential which may thwart further interest in the stock.

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 - 30 Aug 2022