Malayan Banking Berhad - Steady Performance

Date: 30/11/2018

Source  :  PUBLIC BANK
Stock  :  MAYBANK       Price Target  :  9.90      |      Price Call  :  HOLD
        Last Price  :  8.92      |      Upside/Downside  :  +0.98 (10.99%)

The Group’s 9MFY18 reported net profit of RM5.79bn (+7.4% YoY) is within expectations at 74% our and consensus full-year estimates. Improvements have come from lower operating expenses and provisions however as net income only inched 1.1% higher YoY, weighed by uncertainties around some of its key ASEAN markets. We initiate coverage on Maybank with a Neutral call and dividend discount-derived target price of RM9.90. While it may deserve to be accorded some trading premium given its leadership by asset base, loans base and market capitalization, we don’t see current valuations overly-compelling as yet. While still growing, near-term earnings potential may be hampered by margin compressions and asset quality challenges.

  • Loans growth. With a commanding ~18% industry market share of domestic loans, Maybank is a market leader with its growth momentum (or lack thereof) reflective of business and consumer sentiment. The Malaysian and Singaporean books make up the bulk (~84%) of the Group’s overall loans exposure, the latter predominantly corporate-focused and Malaysia consumer-driven. Recent uptick in momentum has been underpinned by the residential mortgage segment (+7.1% YoY, +2.0% QoQ). Working capital related loans (+5.8% YoY, -0.2% QoQ) have also contributed, though still lacking consistency.
  • Net interest margins improved 3bps to 2.30% on a QoQ basis, benefitting slightly from the unwinding of the huge liquidity buildup it undertook in the 2QFY18 quarter. Near-term focus on improving NIM trends is likely achievable with the slight pick-ups seen in corporate lending as consumer lending steadies. Management sees flat NIMs or marginal compressions for the year (FY17: 2.36%). Longer-term however, margins are not anticipated to improve significantly given the intense competition for deposits domestically which will continue to pressure rates.
  • Asset quality: Gross impaired loans had already been exhibiting worrying trends over the last few quarters (since 3Q2015 in fact). While it can be argued that recent upticks are a result of judgmental or obligatory conditions being triggered, the fact that asset quality has degraded to that extent is already somewhat disconcerting. Loan loss coverage ratio (including regulatory reserves) slipped marginally to 92.6% (2QFY18: 93.6%). While the occurrence of newly-classified non-performing loans has slowed sharply QoQ (Figure 4) and which is a welcome sight, loans re-classified as performing is dwindling, a disconcerting sight. Recent crude oil price volatilities may call to question related asset quality issues.

Source: PublicInvest Research - 30 Nov 2018

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