FY22 net profit of RM2.71b (+3%) is within expectations but a total payout of 40.0 sen was a pleasant surprise. Higher payouts could be hinted going forward with the group having more than sufficient capital buffers. Fundamentally, the group would share the same industry-wide challenges but believes is in the right position to write back more overlays. Maintain OUTPERFORM with a higher rolled over GGM derived PBV TP of RM7.10 (from RM7.00).

FY22 within expectations. FY22 net profit of RM2.71b is within our full year forecast (101%) and consensus full-year estimates (105%). An interim dividend of 25.0 sen was declared, amounting to a full-year payment of 40.0 sen (c.60% payout) which is an all-time high. This is way above our expectation as our previously anticipated 32.0 sen was closer to its historical average payout of 50%.

YoY, FY22 total income rose by 11% as net interest margins (2.26%, +9bps) benefitted from the OPR upcycle during the period. At the same time, the group’s loan portfolio grew 7%, mainly thanks to its community banking front. Meanwhile, non-interest income declined by 8% owing to poorer fees and brokerage income. Cost-income ratio improved slightly to 44.7% (-0.5ppts) in spite of a 6% increase in overall cost, thanks to better top line. With regards to loan impairments, credit cost eased to 15bps (-15 bps) after accounting for certain Covid-19 related writebacks as concerns waned. Pre-tax profit demonstrated an increase of 24%, but due to the incursion of one-off prosperity tax, FY22 net profit only came in at RM2.71b (+3%).

Briefing highlights. Owing to its previously conservative targets, the group had significantly beaten its goals, namely with regards to its achieved 7% loans growth (vs 4-5% target). Going forward, the group continues to stay conservative but insinuates that challenges could be more prevalent, especially in relation to its funding business. The tapering off in GDP growth would undermine market demand for loans while increasing competition in deposits could put pressure on cost of funds. Meanwhile, the group seeks to regain lost ground from its fee based income streams as investment markets are showing hints of reinvigoration. At the meantime, investments to meet its TWP24 objectives will be put in place and may translate to lumpy near-term cost for longer-term sustainability. On the flipside, asset quality concerns are seeing a bright spark and the group is more open in writebacks for overprovided accounts (overlays of RM410m remaining), as it has done during recent periods.

Forecasts. Post results, we tone down our FY23F earnings by 4% as updated credit cost guidance indicates possible bumps in impairments. However, this is not accounting for narrowing by further writebacks later on. Meanwhile, we introduce our FY24F numbers which indicates flattish earnings amidst softer income grow being weighed by higher operating costs.

Maintain OUTPERFORM with a higher TP of RM7.10 (from RM7.00). Our TP is based on an unchanged GGM-derived PBV of 0.91x (COE: 10.7%, TG: 3.0%, ROE: 10.0%) but on a rolled over valuation base year of FY24F. In light of brighter dividend potential, the stock now appears to be a leading dividend yield candidate with yields averaging above 7% at current price levels. This could be further lifted should the group decide to release its hefty CET-1 portfolio to reward shareholders further. At the meantime, the stock will still likely be monitored closely due to its tie-in with Axiata-Boost in relation to the upcoming launch of its new digital bank in the near future. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 28 Feb 2023