KEY INVESTMENT HIGHLIGHTS

• 1QFY21 earnings was within expectations

• Net profit weighed down by provisions and weak NII

• PPOP saw decent growth despite tough operating environment

• Strong NOII growth from fixed income trading book

• GIL ratio improved quarter-on-quarter

• Robust deposits growth

• No change to forecast

• Maintain TRADING BUY with unchanged TP of RM3.60

Results in line. The Group posted 1QFY21 earnings that were within our expectations at 28.6% of our full year estimates. However, it was above consensus’ at 32.8% of full year estimate. As we had anticipated, its net profit was weighed down by higher provisions and weakness in NII as it fell -4.7%yoy.

Despite tough operating environment, PPOP grew. The Group saw its PPOP grew +3.3%yoy despite having a full quarter impact of the movement control order (MCO) in 1QFY21. The solid growth was due to strong NOII which mitigate the weak NII. NOII expanded +27.7%yoy, supported by gains in its fixed income trading book.

NIM impacted by OPR cuts but will likely normalize later.

Understandably, NIM compressed by -28bp yoy given the OPR cuts. There was also modification loss which accounted for -14.9bp to the NIM compression. However, we expect that the compression will likely narrow in the coming quarters due to maturing fixed deposits.

Higher provisions expected. The quarter saw provisions as opposed to write back same quarter a year ago. The provisions came from ECL staging amounting to RM43.4m and from macroeconomic factors amounting to RM10.3m.

GIL ratio improved quarter-on-quarter. GIL ratio fell -7bp qoq while it was stable on a sequential year basis. We understand that the management will be monitoring asset quality given the lack of visibility on the impact of the ending of the loan moratorium. The management indicated that it is actively engaging with potentially troubled borrowers to formulate a restructuring & rescheduling scheme.

Gross loans grew, possibly due to lack of repayment. Gross loans saw growth of +6.5%yoy to RM107.4b with mortgages rising +7.7%yoy to RM33.4b. However, we should note that this could be due to lack of repayments during the loan moratorium. On sequential quarter basis, gross loans were stable, expanding +0.2%qoq.

Robust deposits growth and led by CASA. Deposits grew +11.2%yoy and +1.2%yoy to RM114.3b. We were pleased that CASA continued to be the main driver, expanding +32.5%yoy to RM30.6b. This would moderate any NIM compression. Meanwhile, FD grew only +5.2%yoy to RM83.7b, and declined on a quarter-on-quarter basis. This was due to -13.5%yoy to RM33.4b contraction in retail FD

Source: MIDF Research - 27 Aug 2020