KEY INVESTMENT HIGHLIGHTS

• Rewarding shareholders with bonus issue

• Proposing 4 bonus issue for every share held

• We are positive on this as it not only reward shareholders but increase the liquidity, affordability and attractiveness of the stock

• Robust earnings outlook for the Group

• No change to earnings forecast

• Maintain BUY with unchanged TP of RM20.50

Rewarding shareholders. The Group announced yesterday of a Proposed Bonus Issue will entail the issuance of up to 15,528,553,388 bonus shares on the basis of 4 bonus shares for every 1 existing share. At the completion of the exercise, it will expand its share outstanding from 3,882,138,347 shares to 19,410,691,735 shares. The exercise is expected to be completed by 1QFY21.

Making it more affordable. We view the bonus issue as positive. Besides rewarding shareholders, we opine that this will improve liquidity and affordability of the stock. The theoretical ex-bonus share price of Group is approximately RM3.593 based on 5-day VWAP. Our theoretical ex-bonus target price is RM4.10.

Robust earnings outlook. Given the consistent earnings performance of the Group (barring the unprecedented circumstances this year), we expect that this will also enhance the attractiveness of the stock to investors. Recall, its 9MFY20 earnings decline was within our expectations given the multiple OPR cuts and uncertain economic conditions. In addition, we believe that its performance is improving as highlighted by the higher income on a sequential quarter basis. Furthermore, the Group is preparing for any eventualities post loan moratorium with the preemptive provisions. We opine that the Group's asset quality and conservative approach to its credit profile will mean that the Group will be able to weather any potential short-term stress.

No change in earnings forecast. We are maintaining our earnings forecast.

Valuation and recommendation. We maintain our BUY call for the Group. We believe that the situation is turning around especially on the positive development of the Covid-19 vaccine and recovery in the GDP. We expect that FY21 will show an improvement in its earnings as we expect lower credit cost. Meanwhile its strong LLC ratio of more than 200% will ensure that the Group will weather any short term stress. Our unchanged TP of RM20.50 is based on pegging its FY21 BPS to PBV of 1.7x.

Source: MIDF Research - 9 Dec 2020