Investment Highlights

• We maintain our HOLD call on Malayan Banking (Maybank) with an unchanged fair value of RM9.10/share. Our ROE expectation for FY18 of 10.7% remains unchanged and we continue peg the stock to a P/BV of 1.3x. We make no changes to our estimates.

• The group recorded a higher net profit of RM2.03bil in 3QFY17 (+22.2%QoQ). This was mainly due to a modest growth in total income and lower provisions for loan impairment.

• 9MFY17 net profit grew 23.0%YoY to RM5.39bil contributed by higher total income, lower provisions, and an increase in share of profits from associates and JV, partially offset by higher OPEX and tax expense. Cumulative net profit came within expectation, making up 80.3% of our and 75.9% of consensus estimate.

• Negative JAW (0.3%) continued to be recorded for 9MFY17. 9MFY17 CI ratio was 49.2% close to our estimate of 48.0% for FY17.

• Loan growth picked up pace in 3QFY17 with improved contribution from all home markets (Malaysia, Singapore and Indonesia). YTD growth in loans was flat while on YoY basis, the group’s loans grew 5.3%.

• NIM declined 4bps QoQ to 2.35% in 3QFY17 due to higher funding cost in Malaysia. For 9MFY17, the group's NIM rose 13bps YoY to 2.39% attributed to higher yields from the securities portfolio and lower funding cost with a strong CASA growth of 8.2%YoY.

• Group LD ratio remained stable at 94.0%. Compared to the preceding quarter, LD ratio of Malaysia and Singapore declined while in Indonesia, the ratio climbed in 3QFY17.

• Impaired loans declined by 0.5%QoQ compared to an increase 4.2%QoQ in the previous quarter, reflecting a lower formation of new impaired loans. By country, GIL ratio waslower in Malaysia compared to the preceding quarter but higher in Indonesia and Singapore. Asset quality of its oil & gas loans in Singapore remained under pressure and it not likely to improve significantly in the near term despite of more stable oil prices. GIL ratio for the group remained elevated at 2.50% in 3QFY17 vs. 2.53% in 2QFY17. Its loan exposure to oil & gas sector rose to 3.96%vs. 3.89% in 2QFY17 due to higher disbursements. Meanwhile, the group’s exposure to agriculture and metal and mining sector remained stable at 1.78% and 1.31% respectively.Credit cost was lower at 0.32% in 3QFY17(2QFY17: 0.69%). For 9MFY17 credit cost was 0.48% (9MFY16: 0.64%), lower than our assumption of 0.55% for FY17.

• Capital ratios remained healthy with a fully-loaded CET1 ratio for the group and bank entity at 13.3% and 12.6% respectively. The group reiterated that its early assessment Day 1 impact of MFRS 9 would be a 60 to 90bps decline to its CET1 ratio without the utilisation of its regulatory reserves to knock off against the required increase in provisions for the new accounting standard.

Source: AmInvest Research - 4 Dec 2017