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 FY19 P/BV of 1.5x. We finetune our FY19/20 net profit estimates by -0.5%/+0.3% after tweaking our CI ratio and NIM assumptions.

• The group reported an improved core net profit of RM2.32bil in 4QFY18 (+18.9%QoQ) underpinned by higher net interest income (NII), stronger non-interest income (NOII) and lower provisions. This led to 12MFY18‘s normalised earnings of RM8.11bil (+10.6%YoY). 12MFY18 earnings came in within expectations, making up 101.9% of our and 104.7% of consensus estimates respectively.

• Total income grew modestly by 1.6%YoY for 12MFY18 due to weaker NOII. The decline in NOII was largely due to softer investment and trading income.

• Opex decreased by 1.0%YoY in 12MFY18 with lower establishment, administration and general expenses. Against the group’s total income growth of 1.6%YoY, it registered a positive JAW of 0.6%YoY for FY18. The group ended FY18 with a CI ratio of 47.5%, close to our estimate of 48.0%.

• Loans picked up pace in 4QFY18 to a growth of 4.8%YoY. Domestic loans expanded by 4.8%YoY supported by growth in mortgages, auto financing, credit cards, loans for purchase of unit trust and SME loans.

• Net interest margin (NIM) improved 8bps QoQ to 2.38% in 4QFY18 attributed to stronger loan growth while pricing discipline was maintained for deposits. 4QFY18 saw a decline in FDs in Malaysia. We understand these expensive time deposits were substituted by money market deposits to manage its funding cost. Compared with the end of FY17, NIM for FY18 contracted by 3bps to 2.33%.

• Group GIL ratio declined to 2.41%. Credit cost of 0.32% in FY18 was an improvement over FY17 and was lower than our estimate of 0.40%.

• The group’s capital ratios remained healthy with a CET1 ratio of 14.5%. On bank entity basis, CET1 ratio stood at 13.8% We understand that with the local incorporation of Maybank Singapore, the transfer for Singapore Community Financial Services business to Maybank Singapore will reduce Maybank’s bank entity CET1 ratio by 50bps.

• The group declared a final dividend of 32 sen (15 sen cash; 17 sen electable for the DRP). Together with the interim dividend of 25 sen, total dividends were 57 sen/share (payout: 77.3%) in line with our expectation.

Source: AmInvest Research - 27 Feb 2019