Period  4Q14/FY14

Actual vs. Expectations  FY14 net profit of RM6.7bn (+3% YoY) met expectations, representing 101% and 104% of our and consensus’ full-year estimates.

Dividends  A final DPS of 33 sen (vs. 4Q13: 31 sen) was declared, bringing its full year DPS to 57 sen (vs. FY13: 54 sen). In terms of payout ratio, it increased to 79% from 72%. Notably, the final DPS was ahead of our and street expectations of 30 sen and 27 sen, respectively.

Key Results Highlights

FY14 vs. FY13, YoY  Profitability (+3%) was capped by lower non-interest income (-10%) as: (i) contribution from its insurance and takaful business declined by 94% coupled with (ii) a 66% plunge in forex gain. Otherwise, results would have been better given that: (i) net income from Islamic banking rose by 16% and (ii) lower provision for bad loans were made (-45%).

 NIM interest margin (NIM) shrunk 18bpts, no thanks to higher cost of funds (COF).

 Loans and deposits grew at a robust clip of 13% and 11%, respectively, lifting its loan-to-deposit ratio (LDR) by 2ppts to 93%. Essentially, its loans/deposits growth was ahead of our 10%/9% forecasts but came within management target of 13%/10%-12%.

 Loans growth was fuelled mainly by its major operating countries: (i) Malaysia, +9%, (ii) Singapore, +13% and (iii) Indonesia, +5%.

 Current account & savings account deposits (CASA) advanced by 9% and now it makes up 35% of total deposit base (vs. FY13: 36%).

 Cost-to-income ratio (CIR) ticked up by 1ppts to 49% as income was flat but opex grew 2%.

 Although credit charge ratio fell 12bpts, other asset quality indicators were uninspiring: (i) gross impaired loans ratio (GIL) was up 4bpts and (ii) loan loss coverage (LLC) came down by 12ppts.

 Annualised ROE narrowed to 14% (-1ppts), in line with our and management full-year target of 14%.

 CET1, Tier 1 and total capital ratios improved 40bpts- 60bpts to 12%, 14% and 16%, respectively.

 We gathered that its liquidity coverage ratio was above 100% as at end-Dec 14.

4Q14 vs. 3Q14, QoQ

 Quarterly earnings jumped 20% on the back of: (i) a better showing from its insurance and takaful business (4Q14: RM284m vs. 3Q14: -RM168m), (ii) higher fee income (+11%), (iii) larger forex gain (+74%) and (iv) lower effective tax rate of 17% due to some write backs (vs. 3Q14: 26%).

 NIM declined 7bpts as COF rises due to stiff pricebased competition in the market for retail deposits.

 LDR inched upwards by 1ppts to 93% as loans grew faster than deposits at 6% and 5% respectively.

 CIR was flat at 50% as opex and total income grew by the same magnitude (+12%).  Asset quality improved as: (i) GIL declined 13bpts and (ii) credit charge ratio stood at -4bpts due to stronger bad loans recovery (vs. 3Q14: +8bpts). However, LLC was relatively unchanged at 96%.

Outlook

 In Malaysia (contributed 71% to FY14 PBT), weak private consumption resultant from rising inflation coupled with the relatively high industry LDR (of over 80%) are likely to cap lending activities. Hence, we expect system loans growth to taper to +7-8% (from ~9% in 2014). Furthermore, asset quality may come under pressure as default rates climb due to higher cost of living. This along with slower recoveries from bad legacy business loans is poised to push credit charge ratio upwards. Also, NIM pressure is likely to persist given shrinking liquidity in the market.

 In Singapore (contributed 14% to FY14 PBT), growth momentum may taper as the nation’s economic outlook is not as rosy as before; 2014 GDP nudged up only by 2.9% and it is not expected to pick up this year as the country is marred by deflation concerns, weak productivity, tight labour market and higher external export related risk. To note, the official 2015 GDP forecast by the Government is 2%-4%.

 Operational headwinds in Indonesia (contributed 3% to FY14 PBT), should persist over the short-term. In a surprise move last week, its central bank lowered the benchmark interest rate by 25bpts to 7.5%. The easing in monetary policy came after the steep fall in global oil prices, which helped to cool inflationary pressure. With this, NIM compression is likely to stay. Furthermore, the high industry LDR of over 90% will spur competition in the market, especially within the deposit taking space.

 Management introduced its FY15 guidance: (i) ROE to come in at 13-14% (Kenanga: 12%), (ii) Total loans growth of 9-10% (Kenanga: +8.5%), (iii) Total deposits growth of 9-10% (Kenanga: +7.5%), (iv) NIM to decline 8-10bpts (Kenanga: -6bpts), (v) CIR in between 47-48% (Kenanga: 47.5%) and (vi) Credit charge ratio of about 30bpts (Kenanga: 30bpts). Change to

Forecasts  Post updating the full set of FY14 financial results into our model, we made some housekeeping adjustments. Our FY15E net profit was left relatively untouched at RM6,817m vs. RM6,811m previously. Also, we introduced our FY16E, where we expect earnings to grow by 3% to RM7,021m.

 However, for FY15E-FY16E dividends, we assumed a higher payout ratio of 77% instead of 72% previously. Hence, we forecast the bank to declare FY15E-FY16E DPS of 57-58 sen (from 52-53 sen).

Rating Maintain OUTPERFORM Valuation

 Following the update in full year numbers, we nudged up our GGM-TP to RM10.26 from RM10.13 based on 1.66x FY15 P/B (previously 1.7x); we utilised: (i) COE of 8.5%, (ii) FY15 ROE of 12.2% (previously 12.4%) and (iii) terminal growth of 3%.

 All in, we continue to like Maybank for its: (i) superior yield offerings of 6% and (ii) extensive regional exposure in ASEAN 5.

Risks to Our Call  Steeper margin squeeze from tighter lending rules and stronger-than-expected competition.

 Slower-than-expected loans and deposits growth.

 Higher-than-expected rise in credit charge as result of a potential up-cycle in non-performing loan (NPL).  Further slowdown in capital market activities.

 Unfavourable regulatory changes.

 Adverse currency fluctuations. 

Source: Kenanga