Maybank’s 2Q22 profit decreased 5% YoY due to higher provision for impaired loans and bad financial investments. That said, sequential NIM expanded, loans growth held firm, and GIL ratio saw a downtick. Overall, results were in line and thus, forecasts were unchanged. We still like Maybank for its regional exposure and leadership position. Moreover, it has superior dividend yield, scores highly on our internal ESG assessment, and has been chalking in relatively stronger financial metrics compared to other large-sized local banks. Maintain BUY and GGM-TP of RM9.70, based on 1.25x FY23 P/B.

Within estimates. Maybank printed 2Q22 earnings of RM1.9bn (-9% QoQ, -5% YoY), bringing 1H22 sum to RM3.9bn (-10% YoY). This was within expectations, making up 46-47% of our and consensus full-year forecasts.

Dividend. Interim DPS of 28sen was declared (vs 2Q21: 28sen). Ex-date TBD later.

QoQ. The 9% decrease in net profit was due to higher loan loss provision (+89%) and allowance for impaired financial investments (doubled). That said, positive Jaws were present (total income growth outpaced opex by 2ppt), thanks to loans growth (+2.4%), net interest margin (NIM) expansion (+7bp), coupled with higher non-interest income (NOII, +6% due to better insurance underwriting business, fees, and derivative gains).

YoY. Again, positive Jaws from stronger total income (+11%) was wiped out by higher provision for bad loans (+60%) and impaired financial investments (+8-fold). As such, earnings fell 5%. At the top, NIM widened 4bp, loans grew 6.2%, and NOII rose 30%.

YTD. Bottom-line was down 10%, despite total income growing 2% and allowance for loan loss dropping 7%, due to the 8-fold rise in provision for bad financial investments.

Other key trends. Both loans and deposits growth remained firm at 6.2% YoY (1Q22: +5.2%) and +5.3% YoY (1Q22: +5.5%) respectively. On a sequential basis, the loan to-deposit ratio (LDR) ticked up 1ppt to 90%. As for asset quality, gross impaired loan (GIL) ratio fell 14bp QoQ due to write-offs, recoveries, and slower NPL formation.

Outlook. Following Jul-22’s OPR hike, NIM is seen to continue expand sequentially. However, the magnitude could be capped by downward CASA mix normalization and upward deposit repricing. That said, loans growth is anticipated to remain resilient for now. Also, the recent down trending MGS yield is seen to provide some respite to its investment showing over the short term. Separately, loan loss provision is expected to taper down in 3Q-4Q22 given the heavy management overlay allowances it performed this quarter. Thus, even with GIL ratio climbing, we are not overly worried, taking also into account the large pre-emptive provisions made in FY20-21 to cushion this impact. Moreover, FY22-23 NCC assumption built in by both us and consensus are still fairly elevated (above the normalized run-rate but below FY20-21’s level).

Forecast. Unchanged since 2Q22 results were in line.

Maintain BUY and GGM-TP of RM9.70, based on 1.25x FY23 P/B with assumptions of 10.6% ROE, 9.1% COE, and 3.0% LTG. This is fairly in line with its 5-year mean of 1.18x but ahead of sector’s 0.92x. The premium is warranted considering its regional exposure and leadership position. Also, it offers superior yield of c.7% ( 2ppt higher vs peers). In addition, Maybank scores highly on our internal ESG assessment (see our sector report dated 14 Jan-22, titled ‘Improving ESG performance’). Moreover, it has been posting relatively stronger financial metrics compared to other large-sized local banks. In gist, all the above reasons we used to justify Maybank’s premium valuations are also why we like the stock.

Source: Hong Leong Investment Bank Research - 26 Aug 2022