Period  4Q13/FY13  4Q13/12M13

Actual vs. Expectations We were almost spot on MAYBANK’s FY13 full-year results with a variance of just 2.2% between our net profit estimate of RM6.41b and the reported RM6.55b.

 FY13 ROE of 14.9% is in line with the Group’s full year target of 15.0%.

Dividends  Proposed/declared a final DPS of 31 sen, raising the full-year DPS to 53.5ssen. The entire dividend implies >70% payout.

Key Result Highlights

FY13 vs. FY12

 Net profit of RM6.55b, which grew 14.0% YoY, was supported by total income growth of 10.5% YoY. The stronger topline growth was driven by net incomes from (i) Insurance and Takaful business (>100% YoY) as well as (ii) Islamic Banking Business (+28.0%). The stronger Islamic Banking Income was inline with a strong financing growth of 40.4% YoY.

 Net Interest Income, however, only grew marginally by 3.1% despite the entire loan base growth of a decent 13.7% YoY. Again, the lower net interest income growth was owing to further NIM compression of 5bps.

 The loans growth rate was ahead of the management guidance of 12% and higher than our previous fullyear gross loan growth estimate of 9.3%. Household (+13.9% YoY) remain as the major growth drivers and accounted for 44% of the entire loan base. While Domestic Business Enterprises also accounted for 40% of the entire loan book, it grew at a slower rate of 10.1% YoY thanks to SME loans that expanded 15.3% YoY. In terms of loans by economic purpose, share margin financing, auto financing, residential and non-residential loans accounted for 48% of the entire loan book. They grew at 22.1%, 7.5%, 13.7% and 22.1% YoY, respectively.

 Coupled with a slightly higher group deposit growth of 14.0% YoY, the Group Loan-to-Deposit Ratio (LDR) declined marginally to 89.9% as of end-Dec 13 from 89.8% as at end-Dec 12. The Group also continued to benefit from its established franchise, recording healthy growth in deposits, particularly in low-cost deposits (CASA), which grew 16.9% YoY. The ratio of CASA deposits to total deposits rose to 36.1% from 35.2% in end-Dec12.

 As for non-interest income, while it grew at a decent rate of 10.4% YoY, the sustainability of such growth is somewhat questionable. This is because out of the RM5.9b non-interest income, net Forex gains accounted for ~20% (or amounted to RM1.13b). Nonetheless, we take comfort that management indicated ~60% of these forex gains were driven by core banking/forex transactions while the remaining gains are subjected to currency movement. Excluding

the gains from non-core banking/forex transactions, the non-interest income would have grown at a flatter rate of 1.9% YoY.

 The bottom-line of the Group was also boosted by better Cost-to-Income Ratio (CIR). The ratio improved to 48.2% from 49.1% as operating overheads grew at a slower rate of 8.4% YoY. This CIR was slightly better than our expectation of 48.8%.

 Net writebacks/reversal in 4Q13 also supported the bottom-line. For FY13, allowances for loan impairment losses grew 7.4% YoY, making the credit charge-off rate flat at 22bps vis-à-vis 23bps in FY12. This credit charge-off rate was almost in line with our expectation of 23bps. The Group’s gross impaired loan ratio (GILR) improved to 1.48% (end-Dec 13) from 1.78% (end-Dec 12). Loan loss coverage also strengthened to 107.5% in 4Q13 (vs. the industry average of 107%) from 105.6% in 4Q12.

 Despite a 14.0% YoY growth in net profit, EPS only grew 4.3% YoY due to larger average share base of ~11%, arising from a 10% share placement exercise done during the year.

 The banking Group remains well capitalised with Tier 1 and Total Capital ratios registered at 13.1% and 15.7%, respectively (vs. 13.7% and 17.5%, respectively, as at end-Dec 12).

 The ROE of 14.9% was in line with the Group’s full-year target of 15.0%.

4Q13 vs. 3Q13

 The PBT and net profit declined 2.2% and 0.8% QoQ despite seeing writebacks/reversals of impairment of RM54.5m in 4Q13. We understand that the writebacks/reversals were due to some debts settlement and recoveries in 4Q13 coupled with the fact that most of the necessary impairments had already been done during 2Q13 & 3Q13.

 Nonetheless, the positive impact from writebacks/reversals was offset by impairment losses on financial investment of RM121.8m during the quarter and the total income dipped 4.7% QoQ.

 Net interest income was almost flat (+0.3% QoQ) despite a growth of 6.3% QoQ in loans. This is because NIM declined 2bps during the quarter.

 Net income from Islamic banking business surprisingly did very well with a 7.5% QoQ growth.

 Non-interest income surprisingly dipped 13.7% QoQ due to lower net forex gains. Net income from Insurance and Takaful business also declined 30.3% due to higher operating expenses and lower income.

 Cost wise, operating expenses were well-controlled with a marginal increase of 1.3% QoQ. However,

CIR still inched up to 49.8% vs. 46.9% in 3Q13 due to lower total income.

Outlook  While the FY13 results were able to meet market expectations and that of ours, there is concern over the FY14 prospect as per the weaker 4Q13 numbers whereby we saw deterioration in profitability.

 However, the management seems to be fairly optimistic over FY14 outlook with tall targets of 13% growth in both loans and deposits. Besides, they also maintain its ROE target at 15%.

 At the same time, the management also guided (i) NIM to further contract by 10bps, (ii) credit chargeoff rate at ~10bps and (iii) CIR to range between 47% and 48%.

Change to Forecasts Post results, we have revised our FY14E net profit estimates marginally from RM6,760.6m to RM6,685.3m (a revision of -1.1% and growth at 2.0% YoY). We also introduce our FY15 net profit estimate of RM7,552.2m (+13.0% YoY). These earnings estimates were pretty much in line with the consensus estimates of RM6,771.1m and RM7,447.3m, respectively. Our major assumptions are as follows.

 Loans growth: 13.1%-12.2% for FY14-FY15.

 Deposit growth: 13.3%-12.3% for FY14-FY15.

 NIM to continue to be under pressure with further contractions of 10bps & 3bps for FY14 & FY15.

 Cost-to-income ratio to remain sticky at 48.3% & 47.0% for FY14 & FY15.

 Loan loss charge: 23bps for both FY14 & FY15 (vs. management guidance of 10bps).

 ROE estimated at 14.2%-15.4% for FY14-FY15 (vs. management target of 15.0%).

 With these earnings estimates and a payout assumption of 70%, we reckon that the Group may pay out 54 sen and 61 sen DPS for FY14 and FY15, which will translate into dividend yield of 5.6% and 6.3%, respectively.

Valuation  As we only revised our FY14 earnings estimate marginally, we maintain our Target Price (TP) at RM10.40 based on a 3-year average PBV of 2.0x and a 3-year average PER of 13.5x.

Rating  Downgrade to MARKET PERFORM from OUTPERFORM as our TP only implies 7.2% upside from here.

Risks to Our Call  (i) Easing of lending rules and better loan growth, (ii) Faster than expected ETP projects implementation

Source: Kenanga