Investment Highlights

• We maintain our HOLD call on Malayan Banking (Maybank) with an unchanged FV of RM11.0/share. This is based on an ROE of 11.4%, leading to a FY19 P/BV of 1.5x. No changes to our estimates.

• 1QFY18 core earnings of RM1.87bil (-3.9%QoQ, +9.9%YoY) were within expectations, accounting for 22.9% of our and 22.8% of consensus estimates respectively.

• On a year-on year basis, the group’s earnings growth was supported by higher Islamic banking income and non-interest income (NOII), largely due to higher net earned insurance premiums (from life and family insurance) and lower provisions for loan losses, partially offset by higher taxes.

• OPEX growth was flat in 1QFY18 with higher personnel and marketing expenses offset by a drop in establishment, administration and general expenses. This has lagged behind the group’s total income growth leading to positive JAW of 5.4%YoY. 1QFY18 saw an improved CI ratio of 47.7% in line with our estimate of 48.0%.

• The group’s loans were slow with a year-to-date annualised growth of -0.4% or 1.5%YoY. Excluding the FX translation impact due to the strengthened domestic currency, the group’s loan growth was 5.7%YoY. Domestic loans expanded above the industry growth rate but this was dampened by the slowdown of corporate loans in Singapore and Indonesia.

• Net interest margin (NIM) expanded by 9bps QoQ to 2.39% supported by asset repricing in Malaysia (OPR hike of 25bps in Jan 2018) as well as in Singapore. Cost of funds is likely to rise ahead due to the intensified competition for deposits.

• Gross impaired loans rose slightly by 1.4%QoQ to RM11.7bil in 1QFY18. This was contributed by higher impaired consumer loans in Malaysia from the implementation of MFRS 9, which saw certain retail loans classified as impaired due to judgemental triggers despite the loans still being serviced by the borrowers. Meanwhile, there were also impairments of corporate loans in the construction and oil & gas sectors in Malaysia in 1QFY18. In Indonesia, GIL rose to 4.21% in 1QFY18 due to a lower loan base as a result of the repayment of infrastructure loans.

• Credit cost for 1QFY18 came in at 0.41% in line with our estimate of 0.40% and management’s guidance.

• Day 1 impact of the adoption of MFS 9 saw a drop in CET1 ratio by 39bps which was within management’s guidance of a decline by 40bps. Meanwhile, both Tier 1 and total capital ratio fell by 40bps. The adoption of the new standard has resulted in higher provisions by RM2.7bil (+32.7%). Nevertheless, the group’s shareholder’s funds were minimally impacted with a decline of only 1.3% to RM72bil on Day 1. The increase in provisions basing on expected losses was cushioned by the release and transfer of excess regulatory reserves of RM670mil to retained earnings well as an unrealised gain on financial assets at FVTPL of RM1.03bil. This prevented a significant decline in shareholders’ funds.

• The group’s capital ratios remained healthy with a fully-loaded CET1 and total capital ratio of 13.73% and 18.48% respectively as at end-1QFY18.

Source: AmInvest Research - 30 May 2018