Period  3Q14/9M14

Actual vs. Expectations Maybank’s 9M14 net profit of RM4,785m (-1% YoY) met expectations, representing 72% and 71% of our and consensus’ full-year estimates.

Dividends  As expected, no dividends were declared. Payout is usually in 2Q and 4Q.

Key Results Highlights

9M14 vs. 9M13, YoY

 Profitability (-1%) was capped by lower non-interest income (-20%) as: (i) its insurance and takaful business registered a loss of RM269m vs. a gain of RM76m last period coupled with (ii) an 81% plunge in forex gain.

 Net interest margin (NIM) shrunk 14bpts, no thanks to higher cost of funds (COF).

 Loans and deposits grew at a robust pace of 14% and 11% respectively, bringing its loan-to-deposit ratio (LDR) to 92% (from 90%). So far, both loans and deposits growth were within our and management expectations.

 Loans growth was fuelled mainly from its major operating countries: (i) Malaysia, +9%, (ii) Singapore, +21% and (iii) Indonesia, +16%.  For deposits, tepid growth was seen overseas: (i) Singapore, +7%, (ii) Indonesia, +8%, while in Malaysia, it was commendable (+13%). Overall, current account & savings account (CASA) advanced by 6%, representing 34% of total deposit base (-2ppts).

 Cost-to-income ratio (CIR) inched up by 1ppts as negative JAWS kicked in on the back of smaller income base (-3%) vs. flattish opex (-1%).

 Asset quality indicators were intact where gross impaired loans and gross loan loss provision ratio fell 18bpts and 37bpts respectively, while credit charge came down by 16bpts. However, loan loss coverage (LLC) declined 11ppts to 95%.

 Annualised ROE narrowed to 13% (-1ppts), coming in below our and management full-year target of 14%.
 CET1, Tier 1 and total capital ratios improved 50bpts-80bpts to 11%, 13% and 16% respectively.

3Q14 vs. 2Q14, QoQ

 Quarterly earnings ticked up only a mere 2% due to higher opex (+10%) where personnel and administrative costs shot up 13% and 53% respectively.

 NIM was flat given the 25bpts OPR hike in July.

 LDR was unchanged at 92% as loans and deposits grew in tandem (+3%).

 CIR jumped 4ppts to 50% on the back of negative JAWS as income growth was at slower pace (+1%) vs. opex (+10%).

 Asset quality deteriorated as gross impaired loans ratio increased 15bpts while gross loan loss provision and credit charge dipped 4bpts and 10bpts respectively. In turn, LLC dropped 12ppts to 95%.

 We understand that the rise in impaired loans (+14%) was primarily due to a single account exposure to a shipbuilder, which caused delinquency rate in the construction sector to increase to 8% (from 2%).

 The lower credit charge ratio (-10bpts) was owing to higher recovery from bad loans (+64%).

Source: Kenanga