The Group reported a sequentially weaker net profit of RM158.4m (-8.3% YoY, - 25.3% QoQ) for 2QFY23, though the impact is exacerbated by one-off gains in the immediate preceding quarter. Cumulative 1HFY23 net profit of RM370.6m (+16.3% YoY) is broadly within expectations at 56% and 54% of our and consensus full-year estimates respectively however, with its strategic initiatives continuing to gain traction. We leave estimates unchanged, having already accounted for interest rate hikes going into CY2023. While we remain affirmed of the Group’s prospects as it continues to reap the rewards of its balance sheet optimization exercise in recent years, we lower our call to Neutral given limited upsides to our unchanged dividend-based target price of RM4.00.

• Total income for 1HFY23 inched 2.0% higher YoY to RM954.6m, with strong net interest income growth (+12.4% YoY) mitigating weakness in client-based fee income (-0.7% YoY, though more a result of reduced brokerage income as the business has since been disposed) and non-client based income (particularly treasury and investment income) which recorded an RM3.3m loss versus RM66.9m in the corresponding period last year. Net interest income was sustained by robust expansion in its loans portfolio and the multiple policy rate hikes.

• Net interest margin (NIM) improved further to 2.70% (1QFY22: 2.57%) for the current quarter, as it continues to be a notable beneficiary of the ongoing rate hike cycle, and its healthy funding mix (industry-high CASA ratio of 48.7%). NIMs are now expected to range higher between 2.55% and 2.60% in FY23 amid further policy rate hikes, though competition for deposits is now appearing to be more pronounced.

• Loans growth remains at a relatively robust +6.7% YoY, sustained by the SME segment (+14.0% YoY), as well as the commercial banking (+16.8% YoY) business. Growth guidance for FY23 remains unchanged at 6% - 8%.

• Asset quality is healthy, with a cumulative RM100.7m of pandemic-related overlays released / reversed, though this has also been “consumed” by RM51.5m in additional charges due to refinements in its provisioning model, and RM30.1m in additional provisioning for a corporate account – for a net release of RM19.1m in management overlays. Overall gross impaired loans (GIL) ratio is 1.9% (1QFY23: 1.8%). Normalized business-as-usual net credit cost for 1HFY23 is 20.2bps, though headline number is 12.4bps due to 1QFY23’s write-backs. Loan loss coverage remains healthy at 133.8% (1QFY23: 133.2%).

Source: PublicInvest Research - 30 Nov 2022