Maybank’s 3Q21 net profit was down 14% YoY due to negative Jaws and higher provision for bad loans. Also, NIM contracted QoQ. However, loans growth held steady and asset quality was resilient. Overall, results were within expectations and hence, our forecasts were unchanged. We continue to like Maybank for its regional exposure and leadership position. Moreover, it offers superior dividend yield. Besides, Maybank is least affected by Prosperity Tax and its lower foreign shareholding, makes it less susceptible to sell-off. Retain BUY and GGM-TP of RM9.40, based on 1.22x FY22 P/B.

Within estimates. Maybank chalked in 3Q21 bottom-line of RM1.7bn (-14% QoQ and YoY), bringing 9M21 sum to RM6.0bn (+17% YoY on a core basis, after adjusting for modification losses in 2020). This was within expectations, forming 77-80% of our and consensus full-year forecasts.

Dividend. None declared as Maybank only divvy in 2Q and 4Q.

QoQ. The 14% decrease in earnings came on the back of higher loan loss allowances (doubled). However, positive Jaws from lower opex (-3%, thanks to the decline across all cost items) helped to cushion the damage. We note revenue growth was flat since the better non-interest income (NOII, +12%) showing was offset by net interest margin (NIM, -11bp) compression.

YoY. Net profit fell 14% given negative Jaws (opex growth outpaced revenue by 3ppt) and higher provision for bad loans (+40%). Key drag at the top was no thanks to NOII, which declined 25% due to significantly weaker investment -related gains (-95%). That said, NIM expansion (+21bp) and loans growth (+4%) lessened the negative impact.

YTD. Positive Jaws from faster total income growth (+2%) coupled with the 29% drop in impaired loan allowances, led to a 17% rise in bottom-line.

Other key trends. Loans growth held steady at 4.0% YoY (2Q21: +4.1%) but due to high base effect, deposits grew only 2.8% YoY (2Q21: +5.5%). Sequentially, loan-to deposit ratio (LDR) stayed fairly flat at 89%. As for asset quality, gross impaired loan (GIL) ratio fell 25bp QoQ due to write-offs, repayments, and recoveries.

Outlook. We expect NIM to come under slight pressure due to deposit rivalry (typical year end affair) and limited scope for further CASA expansion. Also, lending growth is anticipated to stay resilient given economic reopening. Separately, GIL ratio is likely to creep upwards but we are not overly concerned as Maybank already made heavy pre emptive provisioning in FY20 and in our view, credit risk has been adequately priced in by the market, looking at the high NCC assumption applied for FY21 by both us and consensus (above the normalized run-rate but below FY20’s level). Furthermore, we believe the Government and BNM will remain supportive in aiding troubled borrowers, limiting a significant deterioration in GIL ratio.

Forecast. Unchanged as 3Q21 results were within estimates.

Retain BUY and GGM-TP of RM9.40, based on 1.22x FY22 P/B with assumptions of 9.4% ROE, 8.2% COE, and 3.0% LTG. This is broadly in line with its 5-year mean of 1.19x but ahead of sector’s 0.89x. The premium is warranted considering its regional exposure and leadership position. Also, it offers superior dividend yield of c.7% (3ppt higher vs peers). Besides, it is one of the bank that is least affected by Prosperity Tax (%-wise) and its lower foreign shareholding level relative to other large banks, makes it less susceptible to sell-off.

Source: Hong Leong Investment Bank Research - 26 Nov 2021