The Group reported an improved 1QFY23 net profit of RM2.27bn (+10.7% YoY,  +4.5% QoQ), though aided in part by a normalization in its effective tax rate (4QFY22: ~33% due to Cukai Makmur). Declines in net interest income contributions (-3.0% YoY, -8.3% QoQ) weighed, though lower provisions (on a  YoY basis) helped mitigate the weakness. While meeting our and consensus estimates at 23% and 24% of respective full-year numbers, we are somewhat  wary over the mixed operational performance despite an economically-strong quarter for the country. We maintain our estimates at this juncture, though caution  for potential downward revisions should operating conditions deteriorate in the  near term. Challenges notwithstanding, we continue to like the Group’s prospects,  underpinned by its M25+ initiatives. Our Outperform call and TP of RM9.70 are  retained.

• Net fund-based income declined 2.0% YoY to RM4.80bn in 1QFY23, due  to sustained deposit competition (and resultant higher funding cost) which saw net interest margin (NIM) compress 15bps YoY and 20bps QoQ (annualized). Notable drop-offs this quarter were seen in the global banking  [corporate (-15.8%) and investment banking (-3.8%)] businesses. Going forward, the Group intends to remain focused on its community financial services (mortgage, retail SME, SME+) segment within its ASEAN franchise.  Guidance of a 5bps to 8bps NIM compression is maintained meanwhile.

• Non-interest income was 12.4% higher YoY to RM1.53bn in 1QFY23, with  treasury- and market-related income growth jumping a notable +35.4% YoY,  though some of these were distorted by large swings (gains/losses) in the corresponding period last year. Subdued sequential movement (-3.7% QoQ)  was weighed by insurance-related losses and lower core fees.  § Loans growth momentum slowed on a YoY basis to +5.3% (4QFY22:  +6.0%), though still seeing traction in Malaysia (+5.1%) and Indonesia  (+7.2%). The retail segment was a key driver in both countries (particularly  auto loans and credit cards), though some moderation (on an overall basis)  is expected ahead, on account of slower economic growth.

• Asset quality remains healthy, though we note with some interest on the  additional (specific) overlays still needing to be taken in the current quarter.  Management remains confident that total provisioning overlays of ~RM1.7bn  is still sufficient to cushion against significant downside risks. Loan loss  coverage improved further to 133.5% (4QFY22: 131.2%) meanwhile. Management is maintaining its net credit charge-off rate guidance of between  35bps and 40bps for 2023, though also indicating the possibility of an upside  revision in 2H 2023

Source: PublicInvest Research - 25 May 2023