KEY INVESTMENT HIGHLIGHTS

• Results were within expectations

• Net profit rebounded supported by higher NOII, lower OPEX and lower provisions

• NII was weak, possibly impacted by OPR cuts

• Gross loans grew at slower pace

• CASA led deposits growth

• GIL ratio remained elevated

• No change to earnings forecast

• Maintain NEUTRAL with revised TP of RM2.10

In line with expectations. The Group registered 1QFY21 net profit that was within expectations. It was at 25.5% and 25.7% of ours and consensus’ full year estimate respectively.

Net profit rebounded. The Group 1QFY21 net profit grew +36.0%yoy supported by stable income growth, lower OPEX and lower provisions. Net income expanded +4.1%yoy driven mainly by rise of +29.6%yoy in NOII as it posted investment income of RM60.9m (vs. 1QFY20: RM14.6m). Meanwhile, NII fell -2.0%yoy possibly due to NIM contraction from the OPR cuts.

OPEX came in lower. OPEX fell by -4.8%yoy. This was due to lower personnel expenses and reduction in marketing expenses, IT and premises expenses. As a result, PPOP grew +12.4%yoy.

Also, lower provisions. The Group booked in higher provisions of +70.5%yoy to RM95.0m. We believe that this could be due to preemptive provisions in light of the Covid-19 pandemic. However, with the absence of provisions from ECL on financial investment (possibly from the account that was impaired in 1QFY20), total provisions came in lower.

Slower pace of gross loans growth. Gross loans as at 1QFY21 grew +1.7%yoy to RM43.4b. Main driver for the gross loans was SME lending which grew +9.1%yoy to RM12.3b.

Deposits growth led by CASA. Customer deposits grew +7.9%yoy to RM49.1b. We were pleased that it was led by CASA which expanded +15.9%yoy to RM18.5b. Meanwhile, fixed deposits grew +3.3%yoy to RM27.9b.

GIL ratio still elevated. GIL ratio continued to be elevated at 1.9%, which was +60bp yoy higher. This could be due to the impact of the impairments seen in 2QFY20 onwards. As we expect, asset quality will remain to be under pressure in FY21.

No change to earnings. We maintaining our earnings forecast given that it came within our expectation.

Valuation and recommendation. We are unsurprised by the rebound in earnings in 1QFY21 given the deep provisions seen in 1QFY20. We believe that the Group will continue to face pressure in terms of NII and asset quality in FY21 as there is potential that credit cost and GIL ratio might spike up after the end of the loan moratorium period. However, we expect that NOII will be a moderating factor, coupled with the controlled OPEX. All-in, we are maintaining our NEUTRAL call on the stock with revised TP of RM2.10 (previously RM2.05) as we rollover our valuation to FY22. We pegged its FY22 BVPS to 0.5x PBV.

Source: MIDF Research - 28 Aug 2020