Investment Highlights

• We maintain our BUY call on Malayan Banking (Maybank) with an unchanged FV of RM10.60/share. This is based on an ROE of 11.4% leading to a FY20 P/BV of 1.5x. We make to changes to our estimates.

• The group reported an improved core net profit of RM1.8bil in 1QFY19 (-22.2% QoQ; -3.3% YoY). On a YoY basis, the decline in earnings was contributed by lower non-interest income (NOII), slightly higher operating expenses and increase in provisions.

• 1QFY19 earnings kept pace with expectations, making up 22.0% of our and 21.6% of consensus estimates respectively.

• Total income grew modestly by 0.7% YoY for 1QFY19 as non-interest income (NOII) declined due to marked-tomarket losses in financial liabilities.

• Opex was well contained, rising only 1.4% YoY in 1QFY19 with lower establishment, marketing, administration and general expenses. Against the group’s total income growth of 0.7% YoY, the group posted a negative JAW of 0.7% YoY in 1QFY19. The group’s CI ratio of 47.9% was higher than our FY19 estimate of 46.0% due to softer 1QFY19 revenue.

• Loans contracted by 0.1% QoQ due to repayments of business banking and corporate loans in Malaysia. YoY, the group’s loans grew 4.8% supported by growth in all home markets (Malaysia, Singapore and Indonesia) and overseas market, Greater China and Indochina.

• Net interest margin (NIM) contracted 8bps QoQ to 2.30% due to higher funding cost in Singapore and Indonesia. The group is looking at releasing some expensive non-CASA deposits to manage its NIM. The recent OPR cut of 25bps will have a 1bps impact to the group’s NIM. This is due its lower mix of domestic loans at 58.4% to total gross loans compared with other banks.

• Group GIL ratio rose to 2.48% contributed by impairments of retail SME and business banking loans. Credit cost was 0.47% in 1QFY19 vs. 0.41% in 1QFY18 due to top-up provisions for Hyflux estimated at S$243mil (RM730mil) and higher allowances for newly impaired loans.

• The group’s capital ratios remained healthy with a CET1 ratio of 14.6%. On the bank entity basis, CET1 ratio stood at 13.4%

Source: AmInvest Research - 31 May 2019