Investment Highlights

• We maintain our BUY call on Malayan Banking (Maybank) with an unchanged fair value (FV) of RM9.50/share pegging the stock to a FY23F P/BV of 1.2x, supported by ROE of 10.4%. Our FV has taken into account a premium of 3% based on a 4-star ESG rating.

• We fine-tuned our FY23F earnings by -0.7% to factor in a higher estimate for funding cost.

• The group is targeting to release its 4Q22 results on 27 Feb 2023.

• We expect 4Q22 core earnings to be decent, supported by: i) no significant increase in provisions with asset quality holding up, and ii) lower drag on non-interest income (NOII) from unrealised losses on financial assets and investments vs. 3Q22 due to a more favourable interest rate (10-year MGS yield) movement.

• With no impairments of corporate financing nor increase in delinquencies of consumer loans in 4Q22, we do not expect any surprises to credit cost. The percentages of missed payments of loans under the repayment assistance, relief and restructuring and rescheduling (R&R) programmes are likely to hold up and some loans recoveries materialised in 4Q22.

• The 12M22 credit cost is expected to come in within the guided 50-60bps by management.

• The group’s outstanding unconsumed management overlays remain at RM1.7bil, of which 38% has been allocated for the consumer financial services (CFS) and retail SME (RSME) portfolios. Maybank has made conservative estimates on the macroeconomic factors (MEFs).

• Hence, no additional conservative provisions based on revisions to MEFs are expected to be raised in 4Q22. The management overlays will continue to be conservative provision buffers to mitigate against the any economic headwinds on the group’s asset quality in FY23.

• The security coverage for SME loans stands at 85% while that for business banking loans is 50%.

• The 10-year MGS yield ended 4Q22 at 4.1% vs. 4.4% in 3Q22. With the decline in MGS yield by 30bps QoQ resulting in operating income being less dampened by unrealised losses on financial assets and investments, we expect a moderate improvement in the group’s net fee-based income in 4Q22. However, for 12M22, Maybank’s net fee-based income is still expected to contract YoY. This will be driven by lower commission, fees, services charges, investment, trading and unrealised marked-to-market losses on securities portfolio, similar in trend to 9M22.

• 4Q22 saw strong deposit competition domestically and in Singapore, which are expected to increase the group’s cost of funds. Nevertheless, with the benefits from the earlier OPR hikes of 25bps each in Sept and Nov 2022 flowing through together with the continued positive impact on Singapore’s asset yields from rising interest rates in tandem with Fed rate hikes, we expect the overall group’s NIM in 4Q22 to be either flat or under a worst-case scenario, a mild compression compared to 2.42% in 3Q22.

• In FY23F, we project a flattish NIM of 2.38%. Locally, our economics teams expect another rate hike of 25bps in 1H2023, normalising OPR to 3.00%. Meanwhile, in Indonesia, no further interest rate increase is expected from the present level of 5.75%.

• Recall for 9M22, the group recorded a loan growth of 8.2% YoY. In 4Q22, we anticipate the domestic loan momentum to taper but still register above the industry growth rate of 5.7% YoY. Meanwhile, lending in Singapore is expected to decelerate owing to the rising cost of funds. For FY22F/FY23F, we maintain our overall loan growth expectation of 7%/5%.

• The group’s insurance arm, Etiqa will implement FRS 17 on 1 Jan 2023 and the impact is expected to be minimal to the group’s retained earnings.

• Foreign shareholdings of Maybank as at end of Dec 2022 stood at 18%, unchanged from Sept 2022.

• The stock is trading at 1.1x FY23F P/BV vs. the 5-year historical average P/BV of 1.3x with an attractive dividend yield of 7.3%.

Source: AmInvest Research - 15 Feb 2023