Investment Highlights

• We maintain our BUY call on Malayan Banking (Maybank) with an unchanged FV of RM10.70/share. This is based on an ROE of 11.0% leading to an unchanged FY19 P/BV of 1.5x. We fine-tune our FY19/20 net profit estimates by - 0.5%/-0.5% as we tweaked our credit cost and CI ratio assumptions.

• 3QFY18 core earnings were RM1.96bil (-0.1%QoQ; - 3.5%YoY). 9MFY18 net profits of RM5.79bil (+7.4%YoY) which were within expectations accounting for 72.7% of our and 73.6% of consensus estimates respectively.

• The stronger cumulative earnings were contributed by higher net fund-based income, lower opex and provisions for loan impairment partially offset by lower non-fund based income.

• Opex growth declined by 4.3%YoY in 9MFY18 with a lower establishment, administration and general expenses. Against the group’s total income growth of 0.8%YoY, this has led to a positive JAW of 4.0%YoY. 9MFY18 CI ratio of 47.0% was close to our estimate of 48.0% for FY18.

• Loans grew by 1.1%QoQ or 4.5%YoY. Normalised loan growth excluding the FX impact was 6.4%YoY. Domestic loans expanded by 4.9%YoY vs. 6.1%YoY in the preceding quarter supported by growth in mortgages, auto financing, credit cards, loans for purchase of unit trust and SME loans.

• Net interest margin (NIM) improved by 3bps QoQ to 2.30% in 3QFY18 as the group released some of its excess liquidity which was built up in 1HFY18. This has resulted in a slower deposit growth in Malaysia as well as Singapore. Funding cost is likely to improve in 4QFY18 as further excess liquidity will be relinquish, consequently improving the group’s NIM. On the flipside, this will lower the group’s LCR.

• Non-interest income including Islamic banking income for 9MFY18 fell by 1.2%YoY contributed largely by a lower investment and trading income.

• Gross impaired loans increased by 1.6%QoQ to RM13.5bil in 3QFY18, a smaller rise than 2QFY18. Group GIL ratio remained stable at 2.65% with no additional provisions taken for the group’s exposure to Hyflux.

• Credit cost of 0.40% in 9MFY18 has improved compared to 9MFY17’s 0.48% and it is in line with our expectation.

• The group’s capital ratios remained healthy with a CET1 ratio of 13.6%. We understand that the local incorporation of Maybank Singapore will not any impact on the group’s capital ratios.

Source: AmInvest Research - 30 Nov 2018