We are positive of the group’s near-term prospects. The group’s high variable rate loan mix (87%) should mitigate impact from the shifts in OPR in the coming quarters. Singapore also looks to record strong regional improvements while repayment assistance profiles continue to improve in line with economic recovery. BUY with a TP of RM6.95 based on FY23E PBV of 0.91x. The stock is usually seen favourably for its high CET-1 ratio (c.16%) and prospects in the digital banking space. The group’s historical average of 50% (above its 30% minimum dividend policy) still offers a modest 5-6% yield to investors.

For FY22, management hopes to record 4-5% growth in its loans books (FY21: 6.7%) fuelled by economic recovery. Mortgage and hire purchases are expected to lead books growth, with SME performances still waning in certain sectors (i.e. hospitality, tourism). Singapore (25% loans growth in FY21) is expected to be a strong performer from its earlier-than expected reopening. For the moment, the group’s portfolio is not likely to be directly impacted by the ongoing Russia Ukraine conflict as their accounts are mostly dealing with the Asian Pacific region.

According to management, repayment assistance accounts now only make up 6% (c.RM10.7bn vs. Jan 2022: 12% @ RM21.3bn) of outstanding loans. This is attributed to the expiry of the PEMULIH program where T20s are also thought to have participated, with the more targeted URUS program for B50s seeing an extremely low take-up. For the moment, repayment trends for these accounts seem to be normalising, at c.95% of those applied.

As of FY21, the group had accumulated RM819m of management overlays as provisional buffers. Despite seeing favourable recoveries, management is abstaining from writing back its reserves and may opt to refresh its allocation as uncertainties still persist. CASA competition could weigh down NIMs until OPR hike. To recap, the group anticipates FY22 NIMs to come in at 2.11% (-3bps YoY) attributed by heightened competition for CASA. On an annualised basis, a 25 bps increase in OPR could translate to a 3bps increase to group NIMs, hence normalising the NIMs compression.

Source: Rakuten Research - 14 Apr 2022