KEY INVESTMENT HIGHLIGHTS

• Visibility is still low due to prevalent uncertainty

• Expect asset quality to be under pressure

• OPEX savings from personnel attrition

• Loans growth expected to be weak

• Facing headwinds in position of strength

• Maintain FY20, FY21 and FY22 forecast

• Maintain TRADING BUY with unchanged TP of RM3.95

Visibility still low currently. The Group CFO gave us an update yesterday. Below are the key take away:

• There is still a lot of uncertainty; visibility is still low in terms assessing the full impact of Covid-19 pandemic. Impact will be on credit cost and dividend.

• As guided earlier, the Group will take a hit from its Oil & Gas (O&G) exposure in 2QFY20.

• OPEX savings from natural attrition

Expect asset quality to continue to be under pressure. The management indicated that the visibility in terms on providing guidance is still low due to the prevalent uncertainty in regards to the COVID-19 pandemic. Hence it could not give a definitive guidance on the performance of the Group. However, we can expect asset quality will be impacted as the effect of COVID-19 becomes more apparent in the coming month.

Higher credit cost for FY20. In terms of credit cost, the management expects between 100bp to 120bp for FY20, due in part from the provisions in the Oil & Gas (O&G) sector and the adjustment to the macroeconomic factor (MEF). To give context, the O&G sector accounts for 2.4% of Group gross loans book or RM8.7b, while O&G trader represents 5% of Group O&G loans book. We understand that the Group will take close to full provisions for a potential fraud case of an O&G trader in 2QFY20. With another separate provision taken in 1QFY20, we believe that this could come to circa RM1b in total.

Maintaining NIM compression guidance. The management are maintaining its NIM compression guidance on the basis that there are no further rate cuts this year. We opine that NIM compression will be moderate despite the OPR cut. This is due to the fact that we have observed deposit competition to be tepid this year. In addition, deposits growth in the system have been led by CASA which will help moderate any NIM compression. However, the management expects CASA growth to taper in 2HFY20 post loan moratorium. Also, liquidity seems to be more than ample in the system.

Source: MIDF Research - 17 Jul 2020