Investment Highlights

• We maintain our BUY call on Malayan Banking (Maybank) with an unchanged FV of RM8.40/share based on an ROE of 8.5% leading to an FY21 P/BV of 1.1x. Our earnings estimates are unchanged.

• Maybank’s 2Q20 core earnings of RM1.26bil after excluding the modification loss of RM314mil from the loan moratorium deceased by 38.7% QoQ due to cuts in benchmark interest rates which impacted interest income while provisions rose. The modification loss came in much lower than market expectation considering its large hire purchase (HP) portfolio.

• 6M20 core net profit of RM3.3bil (-11.9% YoY) was within expectations, accounting for 50.5% of our and 52.6% of consensus estimates respectively. The group delivered an ROE of 8.4% based on core earnings.

• Opex remained well controlled with a growth of only 0.3% YoY for 6M20.

• Loan growth remained subdued at -1.0% YoY with the expansion of loans in Malaysia dampened by the contraction of international markets’ (Singapore and Indonesia) loans.

• Group deposits picked up pace slightly to 2.2% YoY contributed by an expansion of CASA in home markets (Malaysia, Singapore and Indonesia) while the group shed expensive deposits (FDs) in Malaysia and Singapore to manage funding cost and mitigate pressure on NIM from rate cuts.

• Gross impaired loans declined by 8.0% QoQ or RM1.1bil to RM12.9bil in 2Q20 contributed by write-offs of some corporate and business banking loans.

• While new impaired loans decreased QoQ, additional provisions of RM500mil were taken based on higher expected credit loss (ECL) through the adjustments of macroeconomic variables (MEVs) as well as RM1bil provisions (management overlay) on certain specific loan borrowers. We view this as a pre-emptive step with Maybank further increasing its provisions prudently.

• No interim dividend has been proposed. Final dividend for FY20 will depend on the financial performance of the group and regulatory approval.

Source: AmInvest Research - 28 Aug 2020