Investment Highlights

• We maintain our HOLD call on Malayan Banking (Maybank) and our fair value of RM10.40/share supported by FY18 ROE of 11.0% leading to a P/BV of 1.5x.

• The group’s loans are likely to be slower QoQ in 1QFY18. This will be due to the FX translation impact with the strengthening of the domestic currency and softer growth of international loans (Singapore and Indonesia). Corporate loans in Singapore and Indonesia are likely to be slow in 1QFY18. Indonesia’s corporate loans for infrastructure, which have expanded earlier, are likely to contract in 1QFY18 due to refinancing of the loans by bonds.

• The group’s overall NIM is likely to expand QoQ in 1QFY18 with improved NIM in Malaysia due to the OPR hike and expansion of margins in Singapore. This is notwithstanding the pressure from asset yields which will compress Maybank Indonesia’s NIM. The pressure on Maybank Indonesia’s NIM will be similar to CIMB Niaga which has already reported its 1QFY18 results and the other banks in Indonesia. Broadly, in Indonesia, competition has been intense in lending rates for mortgages, SME and corporate loans.

• We understand that the group’s deposits will expand QoQ and management has hinted that its fund cost may rise in 2H18 as the deadline for the implementation of NSFR (no earlier than 1 Jan 2019) draws closer.

• Upticks in the group GIL ratio are likely to occur in 1QFY18. Despite of the improvement in oil & gas prices and the business performance of firms in the sector, there are still pockets of weaknesses in this segment as well as the real estate sector in the industry. For Maybank, domestically, due to the adoption of MFRS 9, some consumer loans could be reclassified due to internal triggers. Hence, Malaysia’s GIL ratio is likely to rise QoQ. Meanwhile, asset quality in Singapore will be stable while in Indonesia, the refinancing of corporate loans by bond leading to a lower loan base may cause Maybank Indonesia’s GIL ratio to be higher in 1QFY18.

• With the uptick in GIL ratio, provisions are likely to be higher QoQ in 1QFY18 but it will still be within the management’s guidance of 40-45bps in FY18. As we have already imputed a credit cost assumption of 40bps for FY18, we make no changes to our estimates. With higher provisions, it is likely that the QoQ earnings for the group in 1QFY18 to be softer.

• Recall that on MFRS 9, the group has guided a day 1 impact of a 40bps drop to its CET1 ratio.

• On the news of the potential spin-off and listing of Etiqa, we understand that nothing has been firmed up yet. The news is not new. We understand that it will only be feasible if valuations are attractive enough to unlock the value to its shareholders and certainly not from the angle of a capital release as its cost of investments in the insurance business is not that high.

Source: AmInvest Research - 27 Apr 2018