| Key Information | Details |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading investment bank has upgraded its recommendation for a prominent financial institution to BUY, citing robust future prospects driven by strategic execution and improved financial performance. The target price has been revised upwards to reflect this positive outlook and strong growth momentum.
Performance Review and Outlook
The financial institution is set to exceed previous expectations, with its earnings forecasts for FY25F-27F revised upwards by 2%, 3%, and 6% respectively. Management has reiterated an optimistic outlook for the second half of 2025, anticipating accelerated financing growth and enhanced non-financing income opportunities. While the first half of 2025 experienced a period of subdued earnings due to a recalibration of credit underwriting standards, a strong acceleration in performance is projected for the latter half, primarily fueled by the gradual execution of pipeline deals. The impact of the July policy rate cut is expected to be mild, effectively cushioned by the institution’s sector-low current account savings account (CASA) ratio and a high proportion of fixed deposits.
Strategic Initiatives and Cost Efficiencies
Strategic initiatives under the institution’s “Flight26” plan remain a core focus. Aggressive CASA acquisition strategies are being implemented to enhance financing diversification, improve net interest margin (NIM), and strengthen asset quality. The current CASA ratio stands at 10%, with ambitious targets to reach 15% by end-2025 and 20% by end-2026, achieved through unique solutions tailored for both retail and commercial clients.
Furthermore, the institution is demonstrating strong commitment to cost management. Slightly softer operating expense assumptions for the first half of 2025, deemed sustainable by management, contribute positively to the revised earnings forecasts, highlighting effective cost efficiencies.
Capital Management and Dividends
The institution is strategically addressing its excess capital, which currently reflects a CET-1 ratio exceeding 19%. This is managed through a combination of above-industry financing growth and elevated dividend payouts, projected at approximately 90%. Consequently, dividend per share (DPS) estimates have been significantly raised by 31% to 36% for FY25F-27F, translating into attractive dividend yields of 8-10%. The Common Equity Tier 1 (CET-1) ratio is expected to remain robust, staying above 15% until FY27F, underscoring strong capitalisation.
Risks
Key downside risks identified in the report include potentially weaker-than-expected net interest margin (NIM), softer-than-expected financing growth, and lower-than-expected non-financing income. These factors could impact future performance if they materialise.
Investment Recommendation
Given the robust earnings growth profile, sector-leading dividend yields, and strong strategic momentum, the investment bank has upgraded its recommendation to BUY. The revised target price for the institution is MYR0.79 (up from MYR0.67), which incorporates a 2% ESG premium. This valuation is underpinned by a higher GGM-derived P/BV of 0.64x, a higher sustainable Return on Equity (ROE) of 7.7%, and a slightly lower FY26 BVPS assumption due to the higher payout ratio.
