KEY INVESTMENT HIGHLIGHTS

• 1HFY21 earnings was within expectations

• Support from income growth

• Strong NOII growth from trading activities

• Higher provisions expected and building up buffer

• GIL ratio improved again

• Robust loans and deposits growth

• No interim dividend as additional prudence measure

• No change to forecast

• Maintain TRADING BUY with unchanged TP of RM3.60

Results within expectations. The Group posted 1HFY21 earnings that were within expectations. It came at 47.2% and +51.4% of ours and consensus’ full year estimate respectively.

Net profit declined but PPOP remained robust. The Group 1HFY21 net profit fell -15.3%yoy due to higher provisions. However, its PPOP remained robust as it grew +9.8%yoy coming from its 2QFY21 performance where PPOP expanded +13.9%qoq and +16.3%yoy. In both cases NII and NOII growth were the main drivers.

Good NII growth considering current environment. NII for 1HFY21 grew +3.7%yoy. This was due to a combination of strong gross loans growth and an improved NIM in 2QFY21. Understandably, NIM compressed by -13bp yoy given the OPR cuts and the modification loss. However, as we had expected, the compression narrowed as NIM in 2QFY21 improved +33bp qoq due to deposit repricing and unwound of the modification loss.

Strong support from NOII. NOII grew +18.3%yoy providing strong support to earnings. This was due to strong trading income as Group treasury and markets income grew +67%yoy to RM75m.

Higher provisions expected. The quarter saw higher provisions as the management build up its buffer for any Covid-19 related impact later. An additional RM205m macro provision was made in 2QFY21.

GIL ratio improved quarter-on-quarter. GIL ratio fell -9bp qoq and -20bp yoy. We are cognizant that this was due to the loan moratorium. While we expect that GIL ratio will increase, we understand that the management will be monitoring asset quality.

Gross loans grew, possibly due to lack of repayment. Gross loans growth accelerated to +8.4%yoy to RM110.6b (vs. +6.5%yoy to RM107.4b as at 1QFY21). Main drivers were mortgages and business loans. These grew +8.8%yoy to RM34.4b and +10.6%yoy to RM47.7b respectively.

Robust deposits growth. Deposits grew +11.8%yoy to RM114.8b. We were pleased that CASA continued to be the main driver, expanding +45.7%yoy to RM34.1b. This would moderate any NIM compression. Meanwhile, FD grew only +1.6%yoy to RM80.7b as there was contraction of -6.8%yoy to RM32.9b in retail FD.

Repayment assistance within industry norm. The repayment assistance as at 13 November 2020 amounted to RM11.7b which is circa 11% of total gross loans. Retail borrowers make up 42% (RM4.9b) of the total loans under the repayment assistance, while SME and corporates contribute 27% (RM3.2b) and 31% (RM3.6b) respectively.

Stable capital position means ability to weather current conditions. The management is expecting weaker asset quality in FY21 due to the Covid-19 pandemic. However, we believe that the Group will be able to weather this, supported by its stable capital positions while LLC had improved to 99.9%. We understand that the Group has a loss absorption capacity of RM7.0b from the stress test that management had performed.

No change to earnings forecast. We are maintaining our earnings forecast as the results were within our expectations.

Valuation and recommendation. We continue to like the Group’s resilience in light of the challenging environment. We believe that NII is improving and in tandem with the strong NOII performance and contained OPEX, it will be able to moderate the increase in provisions. This will also moderate any asset quality deterioration. In addition, the situation is expected to improve in CY21 with the positive development of the vaccine. Taking all into consideration, we maintain our TRADING BUY recommendation. Our TP remains unchanged at RM3.60 based on PBV of 0.6x

Source: MIDF Research - 1 Dec 2020