STOCK-MAY: Financial Group Reports Solid Performance with Expanding Net Interest Margin

A prominent financial group has announced its 3QFY25 results, reporting a PATAMI (Profit After Tax and Minority Interests) of RM2.62 billion, representing a 3.3% year-on-year increase. This performance aligns with both market consensus and internal estimates, bringing the cumulative 9MFY25 PATAMI to RM7.84 billion, which accounts for 76% of full-year projections. The strong results were primarily driven by robust net interest income (NII) and non-interest income (NOII).

Performance Review

Despite a recent OPR (Overnight Policy Rate) cut, the group’s Net Interest Margin (NIM) notably improved by 2 basis points (bps) quarter-on-quarter to 2.02%. This positive development is attributed to active liquidity management strategies. Consequently, management has revised its NIM guidance to “stable” from a previously anticipated “slight compression.”

On the loan front, net fund-based income grew 1.6% year-on-year, supported by a year-to-date (YTD) loan growth of 1.3%. Domestic loan growth in Malaysia showed a healthy 5.2% YTD increase, complemented by a 4.4% YTD growth in Singapore. However, these gains were partially offset by a 6.7% YTD decline in loans from Indonesia, reflecting a slowdown in global banking loans. Malaysian loan expansion was predominantly driven by consumer segments, including mortgages, auto, and credit cards, alongside SME and global banking loans.

Deposit trends saw a 0.5% YTD decline, primarily due to a 17.9% decrease in fixed deposits (FDs) in Singapore, a strategic move aimed at optimizing liabilities. Conversely, Malaysia experienced a robust 5.7% YTD growth in CASA (Current Account Savings Account) deposits, pushing the group’s CASA ratio to 39.9%.

Non-interest income saw a strong 6.3% year-on-year growth, reaching RM7.96 billion. This was bolstered by higher wealth fees and treasury income, with insurance income increasing by 20.8% YoY due to enhanced underwriting. However, investment banking related fees declined by 8.9%, affected by softer equity market conditions and lower brokerage income.

Asset quality demonstrated improvement, with Expected Credit Loss (ECL) declining sharply by 54.9%. This was largely a result of provision reclassification from loans to securities and successful recoveries in the non-retail portfolio, coupled with a corporate borrower restructuring exercise. The annualized net credit charged rate eased to 11bps (9MFY24: 26bps), despite an additional RM500 million in management overlays, bringing the total overlay balance to RM2.5 billion. Management has subsequently revised its credit cost guidance downward to ≤20bps from a previous ≤30bps. The Gross Impaired Loan (GIL) ratio saw a slight uptick quarter-on-quarter to 1.32% (2QFY25: 1.3%), mainly from auto and corporate banking portfolios.

Future Outlook and Recommendation

The investment bank maintains its positive stance on the financial group, citing its defensive earnings outlook, attractive dividend yield (exceeding 6%), and stable asset quality underpinned by sufficient management overlays. Given the ongoing repricing of fixed deposits, NIM is expected to remain stable, with management’s revised guidance for credit costs further reinforcing a positive outlook.

The firm reiterated its “Outperform” recommendation for the stock, with a target price of RM11.20.