| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates robust financial performance for a key player in the finance sector, with interim half-year FY26 net profit recording a modest 1.0% year-on-year increase to RM2,260 million. The company’s core operating performance remained strong, as evidenced by a 5.6% year-on-year expansion in pre-BOCD profit before allowances. Shareholders will also benefit from an interim single-tier dividend of 30 sen per share, an increase from 28.0 sen per share in IHFY25.
Driving Forces Behind Performance
The positive results were largely underpinned by effective cost management strategies. Operating expenses saw a notable 4.0% year-on-year reduction, falling to RM1,203 million from RM1,253 million in IHFY25. This improvement is attributed to ongoing strategic cost management initiatives and AI-driven process optimisation, which consequently strengthened the cost-to-income (CTI) ratio to 35.9%, down from 38.8% a year ago.
Income growth also contributed significantly, with net interest income (NII) expanding by 2.6% year-on-year to RM2,537 million. Furthermore, non-interest income (non-NII) improved by 7.5% year-on-year, driven by stronger performance in trading, investment & forex income, alongside an acceleration in fee income, particularly from credit card-related fees, wealth management & bancassurance, and GM franchise sales.
Navigating Challenges
Despite the overall positive trend, the company faced some headwinds. The overall profit before tax (PBT) and net profit growth were tempered by an 11.9% year-on-year decline in associate contributions. This was primarily a result of the natural dilution of a key stake and adverse foreign exchange translation effects due to a stronger Ringgit. The Return on Equity (ROE) stood at 11.4%, just slightly below management’s full-year target range of 11.5-12.0%. Additionally, the gross impaired loans ratio (GIL) widened marginally to 0.59% (from 0.54% in FY25), and loan loss coverage softened quarter-on-quarter to 84% (from 97% in FY25).
Future Outlook and Strategic Focus
Looking ahead, management remains committed to driving higher returns and reaffirmed its full-year guidance, supported by tighter-than-expected cost discipline for the first half. The net interest margin (NIM) is anticipated to remain stable within the 1.8-1.9% range, despite competitive pressures. While loan growth guidance is set conservatively at 6-7%, first-half growth has already exceeded this pace. Asset quality is expected to stay resilient, with the GIL ratio projected to remain below 0.65%.
The upcoming Basel III reforms, slated for July 2026, are expected to provide approximately a 60 basis points uplift to capital, thereby supporting organic growth and potentially paving the way for a higher dividend payout ratio of 50-55% over time. Strategically, the company is sharpening its focus on digital acceleration, wealth franchise expansion, and ESG integration, with new initiatives aimed at deepening SME penetration and enhancing wealth propositions through AI-driven insights.
Based on this performance and outlook, TA SECURITIES has reiterated its BUY recommendation. The investment bank has also adjusted its target price from RM22.97 to RM25.96, reflecting a rolling valuation base year adjustment and a lowered risk-free premium assumption. This new target price is based on an implied PBV of approximately 1.27x using the Gordon Growth Model, incorporating a 3% ESG premium.
