Highlights

• ROE targets for 2026 remain intact despite recent headwinds.
   
• Fair Value on Comprehensive Income (FVOCI) and Fair Value to Profit & Loss (FVTPL) impact on higher bond yields on CET1 and trading income remains manageable due to hedging offsets and strong client franchise fees.
   
• Maintain BUY with a lower target price of RM8.80 (1.25x 2027F P/B, 11.5% ROE) from RM9.30 after earnings adjustment on lower NIM. The stock offers a lush dividend yield of 6.7%/7.0% for 2026/27.
   

Analysis

• Minimal impact on capital from rising bond yields. Management indicated that the impact of rising bond yields in 3Q26 on the group’s CET1 capital ratio through its FVOCI portfolio remains manageable, supported by effective hedging strategies.
   
• Trading income remains resilient despite bond headwinds. Similarly, trading income in 3Q26 has also remained relatively resilient compared with 2Q26, although we expect some sequential normalisation given the higher base in 2Q26, which included RM100m in a one-off non-interest income item. Excluding this contribution, underlying non-interest income appears stable to modestly stronger in 3Q26. To recap, 2Q26 non-interest income posted a 4% qoq growth, coming off an already robust 1Q26 non-interest income base. Management indicated that the group had been able to capitalise on widening credit and interest rate spreads to hedge effectively against rising bond yields. In addition, client-franchise-driven non-interest income, particularly from treasury sales and wealth management, continues to exhibit strong growth momentum helping to cushion negative impact from rising bond yields.