FY23 net profit of RM1.74b (+16%) is within expectations.  However, a final dividend of 12.3 sen was a positive surprise,  returning to historical payout average of 35%. The group opines to benefit from a growing SME base with better contributions from its associate stake in the enlarged Liberty Insurance. However, the group is cautious that developing global conditions may undermine its efforts and growth. Maintain OP with a slightly higher GGM-derived PBV TP of RM5.05 (from RM5.00).

FY23 within expectations. FY23 net earnings of RM1.74b made up  103% each of both our full-year forecast and consensus full-year estimates. A final dividend of 12.3 sen was declared, amounting to a  full-year payment of 18.3 sen (at a c.35% payout ratio). This is above our anticipated 16.0 sen full-year payment as we had expected payouts to linger closer to 30%.

YoY, FY23 total income grew by 12% driven by strong net interest income as loans base grew 9% while net interest margin (NIM) saw a 6  bps expansion. However, owing to deposits competition creeping up in recent periods, NIMs contracted 29 bps QoQ. Meanwhile, non-interest  income gained 17% from recovering treasury performances. Cost-income ratio was mostly stable at 43.9% (-0.2ppt) as operating expense growth was mostly contained. Credit costs improved significantly to 28  bps (-39 bps) as asset quality staging was more favourable. All in, continuing operations reported a 28% increase in earnings but after  excluding discontinued operations in AmGeneral and minority interest,  FY23 net profit reported at RM1.74b (+16%).

Briefing’s highlights. Although the group registered a commendable close to its FY23 earnings, it reserves from providing more detailed guidance for FY24 in lieu of developing macro landscapes.

1. Though it outperformed its FY23 loans growth target of 6%-7% with  a 9% delivery, the group opines that a more moderate pacing could  be experienced in the coming year, indicating a likely 5%-6%  benchmark, akin to industry.

2. The timing of writebacks continue to be an uncertainty as staging  conditions may evolve, inclining the group to withhold guidance on  credit cost for now. At present, the group sits on an overlay of  RM461m, which it had topped up from FY22’s RM394m against  selected corporate exposures.

3. The group looks to focus on CASA strategies to uplift its NIMs,  having seen the wide above-mentioned QoQ erosion. It opines that  it may be able to achieve a relatively stable rate, though we believe  it is more inclined to see some strain.

4. The divested AmGen-Liberty insurance group looks to contribute  more in terms of associate earnings going forward. The entity has  recently concluded its integration of business and is poised to reap  from more expansionary strategies in due course.

Forecasts. Post results, we raise our FY24F earnings slightly as we  incorporate FY23’s full-year numbers. Its 7% EPS growth is backed by  modest improvements across the board, but with NIMs possibly coming  off. Meanwhile, we also introduce our FY25F numbers.

Maintain OUTPERFORM with a slightly higher TP of RM5.05 (from RM5.00, previously). Our TP is based on an unchanged  GGM-derived CY24F PBV of 0.82x (COE: 10.7%, TG: 4%, ROE: 9.5%). We believe the group could be a key beneficiary of the ongoing economic recovery from its notable SME loans profile (21%) - asset quality concerns on household sectors aside. The  group also seeks to enjoy a better long-term growth trajectory from the abovementioned more aggressive partnerships against its  peers. 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) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi)  changes to OPR.

Source: Kenanga Research - 30 May 2023