Investment Highlights

• We maintain our HOLD call on Malayan Banking (Maybank) with a revised fair value of RM9.20/share (previously RM9.10/share) after tweaking our estimates. We have fine-tuned our forecast, raising our FY18/19 net profit slightly by 2.6%/3.3% after imputing higher NOII estimates. We now expect an ROE of 10.7% (previously 10.5%) for FY18 and continue peg the stock to a P/BV of 1.3x.

• The group reported a core net profit of RM1.7bil in 1QFY17 (+19.3%YoY, -1.9%QoQ). Compared to 1QFY16, the improvement in earnings in 1QFY17 was contributed by higher net interest income (NII) from better NIM and loan growth as well as lower net impairment losses of 38.2%YoY.NOII was lower in 1QFY17 largely due to unrealised losses from the revaluation of derivatives. Annualised ROE for 1QFY17 of 9.8% was in line with our estimate.

• Core net profit came within expectation, making up 24.8% of our and 24.1% of consensus FY17 net profit estimate.

• Negative JAW of 4.0% was recorded as growth in OPEX of 7.0%YoY, driven by higher personnel and admin and general expenses, outpaced its operating income growth of 3.0%YoY. 1QFY17 saw the group's CI ratio rising to 50.5%.

• Loans grew at a faster pace of 10.0%YoY in 1QFY17, compared to 5.7%YoY in the preceding quarter. This was supported by stronger loan momentum in Malaysia, a pickup in pace of Singapore's loans but a slower loan growth in Indonesia.

• NIM improved 11bps QoQ or 9bps YoY to 2.43% in 1QFY17 attributed to a lower funding cost and higher asset yield.

• There was tighter liquidity with the group’s LD ratio rising to 94.7%. LD ratio for Singapore increased while that of Malaysia and Indonesia dropped in 1QFY17.

• Gross impaired loans rose by 5.4%QoQ to RM11.6bil in 1QFY17, contributed largely by an increase in impairment of loans in Singapore and Malaysia. For Singapore, the increase in impaired loans was 32.1%QoQ. We understand this was due to the impairment of oil & gas sector loans but in smaller accounts compared to the ones impaired the previous year. In Malaysia, the increase was due to higher impairments of business banking loans. This has resulted in an increase in the group's GIL ratio to 2.40% in 1QFY17 vs. 2.28% in 4QFY16.

• Credit cost was lower at 0.45% in 1QFY17 compared to 0.54% in 4QFY16 and 0.75% in 1QFY16 and remained within our assumption of 0.50% for FY17.

• Capital ratios remained healthy with a fully diluted group CET1 ratio of 12.8%.

• No dividend has been declared.

Source: AmInvest Research - 26 May 2017