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. No change to our estimates.

• We met the management recently for updates. We gather that the recent loan approvals have been strong. Maybank’s loan pipeline has been decent, and it is only a matter of timing for the approved financing to be translated to drawdowns. Household loan growth is expected to be stable in 2H19 while corporate loans could improve ahead if there is no recurrence of 1QFY19 repayments. We understand that there has been a better traction for business banking loans of late. Meanwhile, on mortgages, the group is focused on financing purchase of properties priced between RM400,000 and RM500,000.

• The group is not expecting a further OPR cut in 2H19. Funding cost is stabilizing in Malaysia as intensity of deposit competition has eased slightly post-OPR cut. In Indonesia, funding cost pressure has also eased with the statutory reserve requirement for banks lowered by 50bps. Nevertheless, asset yields in Indonesia have dropped due to stronger competition. Hence, NIM pressure still persists for Maybank Indonesia in the near term.

• On asset quality, management does not see anything alarming yet despite concerns on the rise in foreclosure of properties as reported by the media. While there is some weakness on corporate loans in Indonesia, there are no alarming concerns in Singapore’s asset quality from the weaker trade transactions due to the US and China tension.

• For NOII, capital market activities are seen as improving while income from insurance business is likely to remain strong.

• On CASA, growth of low cost deposits could gain traction in 2H19 if business sentiment picks up pace.

• Valuation of the stock is not demanding at 1.3x FY20 PB. It is trading below the 5-year historical average PB of 1.4– 1.5x.

• Also, dividend yield is attractive at 6.8% which is higher than the yield of 10 year MGS (risk-free rate security) of around 3.6%. The stock’s foreign shareholdings are not high at 18.8%, and we believe this will lead to a more stable share price.

• There will be lesser impact on NIM and earnings on Maybank from the OPR cut compared with most of the other banks due to its lower mix of domestic loans at circa 58.4% of total loans with 71.8% of its loans pegged to floating rates.

Source: AmInvest Research - 19 Jul 2019