Investment Highlights

• We maintain our BUY call on Malayan Banking (Maybank) with a revised FV of RM8.30/share (previously RM8.50/share) based on an ROE of 8.2% leading to an FY20 P/BV of 1.1x. We lower our FY20/21 earnings by 12.3%/5.5% to reflect lower loan growth of 2%/2% and higher credit cost of 0.8%/0.7%. Also, we have fine-tuned our NOII estimates.

• Maybank’s 1Q20 earnings of RM2.0bil registered an increase of 13.3% YoY with higher total income offset by a rise in opex and provisions.

• 1Q20 net profit was within expectations, making up 26.2% of our and 26.1% of consensus estimates respectively. The group delivered an ROE of 10.3%.

• Opex grew 4.8% YoY in 1Q20 due to higher personnel and establishment expenses. The group posted a positive JAWs of 10.0% YoY for 1Q20. 1Q20 CI ratio of 43.8% was lower than our FY20 estimate of 46.0%.

• Loan growth was tepid at 0.3% YoY with the expansion of loans in Malaysia offset by the contraction of international markets’ (Singapore and Indonesia) loans.

• The group remained cautious on corporate loans in Singapore and Indonesia due to the weaker asset quality in these international markets.

• Group deposits contracted by 2.5% YoY contributed by the intentional release of expensive deposits (FDs in Malaysia and Indonesia).

• Net interest margin (NIM) fell 6bps QoQ to 2.23% in 1Q20 contributed by rate cuts of 25bps each in Jan and Mar 2020 in Malaysia. Also, interest margin in Indonesia was also compressed by a 50bps rate cut in 1Q20. NIM is expected to contract further in 2Q20 owing to the 50bps OPR reduction to 2.00% in May 2020.

• Group GIL ratio rose to 2.71% in the preceding quarter. 1Q20 credit cost increased to 0.74%, which is higher than our estimate of 0.60% for FY20 due to a conservative provisioning of RM600mil taken by the group despite no significant deterioration in asset quality as yet from Covid-19.

Source: AmInvest Research - 22 May 2020