Investment Highlights

• We maintain our HOLD call on Malayan Banking (Maybank) with our fair value raised to RM10.40/share (previously: RM9.80/share). We have tweaked our FY18/19 net profit estimates by 6.9%/8.1% after revising our estimates for provisions. Our ROE estimate for FY18 has been raised to 11.0% from 10.7% and we now peg the stock to a higher P/BV of 1.5x.

• Core net profit in 4QFY17 was RM1.95bil (-4.0%QoQ) after stripping out a lumpy one-off gain from the disposal of property, plant and equipment of RM185mil.

• 12MFY17 core earnings grew 19.9%YoY to RM7.3bil, supported by higher total income, lower provisions, and an increase in share of profits from associates and JV, partially offset by increase in OPEX and tax expense. Cumulative core earnings were above our expectation, making up 107% of our projection. It was within consensus estimate at 101% of consensus numbers. The variance to our estimate was largely due to lower-than expected provisions for loan losses.

• Growth in OPEX outpaced that of its total income of 4.9%YoY leading to negative JAW of 3.4%. CI ratio for 12MFY17 was 48.8% vs. our projection of 48.0%.

• The group’s loan grew 1.7%YoY below behind its management’s guidance of 3.0% for FY17. Domestic loans expanded by 5.0%YoY above the industry's 4.1%YoY but was partially offset by a contraction in international loans of 2.9%YoY.

• Net interest margin (NIM) improved 9bps YoY to 2.36% supported by commendable CASA growth across all home markets and higher yields from securities portfolio. QoQ, NIM declined 5bps to 2.30% in 4QFY17 due to higher funding cost.

• Group LD ratio remained stable at 93.8%. Compared to the preceding quarter, LD ratio of Malaysia and Singapore declined while in Indonesia, the ratio climbed in 4QFY17.

• For FY17, NOII declined by 6.1%YoY. The drop was contributed by lower investment and trading income. Recall in 4QFY16, the group reported a one-off gain of RM625mil from the sale of shares in Visa and MasterCard.

• Gross impaired loans declined by 4.5%QoQ to RM11.5bil in 4QFY17. We understand that were some sale of NPLs in the 4QFY17. GIL ratio for Malaysia continued to trend lower while that of Indonesia showed an improvement. Meanwhile, GIL ratio for Singapore rose by 5bps QoQ. Overall, GIL ratio improved to 2.34% from 2.50% in the preceding quarter reflecting a better asset quality. Credit cost for 12MFY17 came in at 0.40% lower than 12MFY16's 0.58% as well as our projection of 0.50%.

• A final dividend of 32 sen/share has been proposed, bringing the total dividend to 55 sen/share for FY17 (payout: 78.5%) higher than our estimate of 50 sen/share.

• Capital ratios remained healthy with a fully-loaded CET1 ratio for the group and bank entity at 14.0% and 13.3% respectively. The group reiterated that its early assessment Day 1 impact of MFRS 9 would lower its CET1 ratio by 40bps.

Source: AmInvest Research - 1 Mar 2018