KEY INVESTMENT HIGHLIGHTS

• Result was above expectations as we overestimated the NIM compression

• Robust NII as NIM improved due to lower cost of fund

• Earnings were weighed down by increase in provisions as the Group took into account the impact of Covid-19

• Loans growth stable while deposits growth was led by CASA

• Final dividend of 7.3sen/share. Lower than expected

• Tweaking FY21 and FY22 earnings downwards

• Maintain TRADING BUY with unchanged TP of RM3.60

Results above expectations. The Group registered its FY20 which was above our expectations at 111% of our full year estimate. The variance was due to our overestimation of the NIM compression following the OPR cuts.

NIM held up very well. We were pleasantly surprised that NII came in +12.4%yoy higher. This was due to NIM expansion of +5bp yoy despite the OPR cuts in the quarter. The improvement in NIM was due to lower cost of fund which fell -29bp yoy to 3.16%. As a result net income increased +7.8%yoy. Coupled with lower OPEX, PPOP grew +18.3%yoy.

Earnings were weighed down by higher provisions. The net income growth had moderated the impact of higher provisions. Net profit in FY20 fell -10.9%yoy as the year saw provisions as opposed from write backs in FY19. The increase in provisions was due to RM167.3m macroeconomic factor taking into account the impact of the Covid-19 pandemic. Also, there were recoveries of RM493.6m in FY19.

GIL ratio spiked up but LLC still at good level. GIL ratio spiked up +14bp yoy. Most of the gross impaired loans came from the retail sector where it grew by RM196m to RM924m. However, we believe that the LLC were at a good level at 93.4%.

Housing and business banking led loans growth. Gross loans saw growth of +5.3%yoy to RM107.2b. Mortgages continued to lead gross loans growth. It grew +7.9%yoy to RM32.9b. Business banking also made a key contribution. This segment loans book expanded +10.8%yoy to RM47.3b as at 4QFY20.

Robust deposits growth and led by CASA. Deposits grew +5.7%yoy to RM113b. We were pleased that CASA was the main driver, expanding +16.1%yoy to RM28.8b. However, this could be due to individuals and businesses keeping liquidity sufficient in light of the uncertain environment surrounding Covid-19. This could be evident by the decline in retail FD of -19.0%yoy to RM32.5b. Total FD meanwhile grew +2.6%yoy to RM84.2b.

Expecting tough environment ahead. The management are expecting weaker asset quality in FY21 due to impact of Covid-19 and the movement control order (MCO) and also further NIM compression. However, we believe that the Group could possibly weather this support due to its stable capital positions

Source: MIDF Research - 30 Jun 2020