• BUY, new MYR9.45 TP from MYR9.65, 10% upside with c.7% FY23F yield. Malayan Banking’s 1Q23 results meets expectations. Support to its earnings growth is underpinned by: i) Benign credit cost, ii) better associate contributions, and iii) a lower effective tax rate (ETR). Key negatives: NIM drag (-15bps YoY/-20bps QoQ) and opex escalation. Management is maintaining its FY23 guidance, but has flagged the potential for lower credit costs if asset quality continues to hold up. This stock is still a sector Top Pick, with capital management/shareholder returns being an ongoing theme.

• 1Q23 net profit rose 11% YoY or 5% QoQ to MYR2.3bn, making up 24% of our and consensus FY23F net profit. 1Q23 PIOP was down 6-7% YoY and QoQ due to NIM and opex pressure, but pre-tax profit grew by 3% YoY (-8% QoQ) due to stronger associate contributions (YoY and QoQ) and lower total impairments (YoY). Reported ROAE of 10.7% is tracking management’s 10.5- 11% target while CET-1 was solid at 15.1% (4Q22: 14.8%).

• Gross loans expanded 5% YoY (+1% QoQ), driven by the domestic (+5% YoY) and Indonesia (+7% YoY) segments. Meanwhile, total deposits rose 3% YoY (+2% QoQ) with Malaysia (up YoY and QoQ) and Singapore (up QoQ) as the main drivers. We note the continued shift in the deposit mix with fixed deposits (FDs) rising 17% YoY or 5% QoQ, whereas CASA slipped 13% YoY or 3% QoQ as depositors hunted for higher yields. This was especially pronounced in Singapore, with Maybank’s CASA in that market falling 44% YoY (largely compensated by a 43% hike in FDs). As such, group CASA ratio at end-March eased to 39.1% from 40.9% in Dec 2022 – albeit above the pre-pandemic level of 35.5%.

• NIM pressure – the worst is past? Malaysia was the biggest contributor to the YoY NIM decline and, to an extent, Singapore. However, Maybank has seen local FD board rates start to ease and plans to adjust down its FD rates as well from 2Q23. Together with May’s overnight policy rate hike, these should bode well for NIMs ahead. Management maintained its 5-8bps NIM compression guidance for FY23. Compared against the FY22 and 1Q23 NIMs of 2.39% and 2.19%, this suggests the worst may be over for NIM pressure.

• Asset quality held up with GILs down 3% QoQ (-19% YoY) as new impaired loan formation stayed low, coupled with write-offs (Hong Kong corporate account). As such, its GIL ratio improved to 1.5% in 1Q23 (4Q22: 1.6%, 1Q22: 2.0%) while LLC rose further to 134% (4Q22: 133%, 1Q22: 108%). Overlay buffers stayed at MYR1.7bn. Maybank remains watchful for potential asset quality stress from consumer and SME loans as there have been incidences of missed payments post exit from repayment assistance programmes. The corporate segment, however, has been holding up better than expected.

• FY23-25F earnings are unchanged. However, we pare down our TP to MYR9.45 (from MYR9.65), as we lowered the ascribed ESG premium to 2% from 4%. With a greater focus on the E pillar due to climate change issues, we have tweaked our ESG weightage. For further details, see our research note titled Envisioning a Better Future.

Source: RHB Research - 25 May 2023