| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM9.27 (+10.4%) |
| Last Traded | RM8.40 |
| Recommendation |
A leading investment bank reported a robust performance for FY25, with net profit surging by 7.8% year-on-year to RM3,363 million. This result significantly exceeded expectations, accounting for 104% of the full-year forecast. The strong showing was primarily driven by a combination of healthy income growth and substantially lower allowances for credit losses, leading to an improved Return on Equity (ROE) of 10.5% from 10.0% last year. Following these impressive results and an optimistic future outlook, the investment bank has upgraded its recommendation for the stock from SELL to BUY, raising the target price to RM9.27, an increase of 10.4% from the last traded price of RM8.40.
Performance Review
The stellar FY25 net profit was underpinned by several positive developments. Net fund-based income expanded by 3.9% year-on-year, fueled by an increase in loan volumes, despite the Group’s net interest margin (NIM) slightly contracting to 1.80% (from 1.86% in FY24), which nevertheless remained within the target range. Notably, NIM expanded by 5 basis points quarter-on-quarter due to effective deposits repricing.
Total loans advanced by 6.1% year-on-year, with domestic operations leading the growth (+6.2% YoY). Key contributors included community banking (mortgages, auto finance, unsecured business loans) and corporate and business loans. Group Wholesale Banking also saw significant growth. Furthermore, total customer deposits broadened by 1.2% year-on-year, with CASA deposits experiencing an 11.6% increase, improving the CASA ratio to 30.4% from 27.6% in 4QFY24. This rebalancing effort aimed at reducing reliance on pricier deposits proved effective.
Operating expenses, however, expanded by 3.3% year-on-year, largely due to IT enhancements and increased marketing expenditures. This led to a slight rise in the cost-to-income (CTI) ratio to 47.3% for FY25, marginally missing management’s internal target of 45.5-46.0%. Non-fund-based income also saw a 2.1% contraction, primarily from treasury income.
Asset quality showed significant improvement, with total allowances falling to RM214 million from RM535 million a year ago. The credit cost notably decreased to 13 basis points from 22 basis points in FY24. The gross impaired loans (GIL) ratio also strengthened to 1.41% from 1.47% a year ago, reflecting improved forward-looking macroeconomic indicators and higher recovery rates from corporate accounts. However, the loan loss coverage (without Regulatory Reserves) saw a minor slip to 76.6%.
In terms of shareholder returns, a second interim dividend of 35 sen per share was declared, bringing the total dividends for the year to 50 sen, representing a robust payout ratio of 65%. Management has further revised its dividend payout guidance upwards to 50-60%, with potential flexibility to exceed 60% based on earnings performance.
Future Outlook and Strategy
Management is guiding for a positive trajectory in 2026, targeting a ROE of 10.8-11%, loan growth of 5-6%, and NIM expansion to 1.91-1.94%. This margin improvement is expected to be driven by a strategic pivot towards higher-yielding segments, repricing of expensive deposits, and maintaining a robust CASA ratio above 30%. Non-interest income growth is also anticipated to accelerate through wealth management and bancassurance initiatives, with Singapore earmarked as a key regional growth engine.
Cost discipline remains a key focus, with management aiming for annual cost growth below 4% through productivity gains and operational model optimization, targeting a CTI ratio of 46-47% for FY26. Asset quality is anticipated to remain manageable, with the GIL ratio guided at 1.35-1.40% for 2026, and credit costs normalizing at 13-14 basis points, signaling stable risk trends. Capital buffers are expected to remain robust, placing the group among the strongest-capitalised domestic peers.
Analyst View and Recommendation
TA Securities has upgraded its recommendation for the stock from SELL to BUY, citing the upward revision to earnings forecasts and a lowered risk-free premium assumption. The new target price of RM9.27 is based on an implied Price-to-Book Value (PBV) of approximately 1.11x, derived from the Gordon Growth Model and a 3% ESG premium. Given the enhanced risk-reward premium, the investment bank believes the stock offers a compelling opportunity for investors.
