Core net profit for 9MFY24 was within expectations. However, 3QFY24 saw a weaker operating income QoQ which led to a flattish net profit for the quarter. The stock has rerated to FY25F P/BV of 1.3x from 1.1x earlier. We continued to see stretched valuation with the stock trading at 1.3x FY25F P/BV. With potentially margin compressions in Singapore as well as pressure on Malaysia's NIM from a likely OPR cut of 25bps in 2H25, we see limited ROE uplift ahead. We maintain our UNDERWEIGHT recommendation with an unchanged TP of RM8.85/share based on CY26 P/BV of 1.1x supported by ROE of 10.6% with a 3% premium accorded for a 4-star ESG rating.

• 9MFY24 earnings within expectations accounting for 76% of our and 75.8% of consensus estimates. 9MFY24 net profit grew 8.5% YoY to RM7.6bil contributed by higher net fund based and non-interest income (NOII) partially offset by rise in operating expenses (OPEX) and provisions. QoQ, net profit was flat at RM2.54bil (+0.3%). Operating income fell by 1.6% QoQ in 3QFY24 with a slowdown in net fund-based income and NOII.
• Loan growth moderated with NIM compressed by 3bps QoQ in 3QFY24. 3QFY24 saw the group's loans contracted by 0.7% QoQ with a decline in corporate loans in Indonesia. The group is rebalancing its loan mix to reduce its exposure to corporate loans in Indonesia. Meanwhile, loans in Malaysia and Singapore grew at faster pace QoQ. On a YoY basis, the group's loan growth moderated to 7.6% from 10.4% in the previous quarter. NIM was compressed by 3bps QoQ to 2.03%. YTD, NIM fell by 11bps to 2.04%, slightly above management's guidance for a compression of close to 10bps for FY24.
• Growth in operating income tapered due to a slowdown in Treasury and Market's income. This led to a CI ratio of 48.6% for 9M24. Operating income grew 8.7% YoY for 9M24 compared to 9.4% YoY in 6M24. 9MFY24 saw higher core fees from wealth, loan related, IB advisory and brokerage as well as insurance partially offset by lower realized derivatives gain.
• Stable asset quality and credit cost in 3Q24. GIL ratio improved marginally to 1.26% in 3QFY24 from 1.29% in 2QFY24 supported by loan write-offs and recoveries in Singapore and Malaysia. Credit cost was stable at 23bps in 3Q24. 9MFY24 credit cost of 25bps improved compared to 29bps in 9MFY23. The group continued to maintain its management overlays of RM1.7bil, of which 66% have been allocated for retail and RSME portfolio. Weakness in asset quality continues to be seen on RSME loans in Malaysia, Singapore and corporate banking loans in Indonesia.

Source: AmInvest Research - 27 Nov 2024