Period

3Q15/9M15

Actual vs. Expectations

Maybank’s 9M15 CNP of RM5,183.9m (+8.3% YoY) was within our/market expectations, making up 76%/79% of full-year forecasts. The improved performance was due to improvement across the board with loans surging 20.1% YoY.

Dividends

Not a surprise with none declared.

Key Results Highlights

9M15 vs. 9M14, YoY

9M15 PAT improved by 8.3% attributed to improvements across the board and a one-off gain in the sale of its PNG assets of RM184m despite a rise in loan loss provisions. Stripping off the sale, rise in PAT was at 4.2%.

Improvements in: (i) Net interest income (NII) at 12.7%; (ii) Non-Interest Income (NOII) at 19.7% and (iii) Islamic banking at 20.1% pushed total income growth by 16.1%. The surge in NOII is attributed to the one-off sale of its PNG assets and a surge in forex gain by 291% to RM1,115.0m.

Operating profit was slower at +6.5% attributed to higher opex (+14.8%) and allowance for impairment losses (+179.7%). Higher impairment losses were due to higher individual allowance and lower bad debts & financing recovered.

The higher opex is attributed to higher marketing and administrative expenses of +20.4% and +22.8%, respectively. Despite higher opex, Cost to Income ratio (CIR) fell by 50bpts to 48.1% as total income outpaced opex growth (vs industry’s CIR of 51.2%).

NIMs fell by only 2bpts to 2.25% on better pricing of assets.

At the PBT level, Malaysia is still the biggest contributor, accounting for 75.1% (9M14: 72.7%) followed by Singapore at 13.4% (9M14: 13.2%) and Indonesia at 2.4% (9M14: 2.2%).

Loans and deposits grew by 8.7% and 5.4%, respectively (on an annualised basis), after excluding forex fluctuations (including the forex fluctuations, growths were 17.8% and 12.6%, respectively). Note that we assumed loans/deposit to grow at 8.5%/7.5%.

More than half of the loans were domestic based with Malaysia at 55.3% (9M14: 60.2%) followed by Singapore at 26.1% (9M14: 23.5%) and Indonesia at 7.5% (9M14: 7.6%). Loan was driven by growth from Singapore (+11.3%), Malaysia (+6.4%) and Indonesia (+5.9%).

LDR surged by 5.2ppts to 97.3% as loans outpaced deposits and CASA improved by only 50bpts to 35.0%.

Asset improved as GIL ratio fell 11bps to 1.54%. The improvement was due to loan growth, which outpaced non-performing loans at 12.5%.

Loan loss coverage fell 10ppts to 85.4% below the industry coverage of 98%.

Credit cost was up by 22bpts to 0.38% (we had assumed it to be at 30bpts).

Key Results Highlights

(Con’t)

CET1 and CAR fell by 10bpts and 100bpts to 11.2% and 15.0%, respectively, due to increase in its Risk Weighted Assets (RWA) but still above the regulatory requirements of 7% and 10.5%, respectively.

ROE was at 12.3% (vs. our forecast of 12.2% and management’s target of 12%-13%). 3Q15 vs. 2Q15, QoQ

On a quarterly basis, CNP surged 19.2% on the back of improvements in: (i) NII at 8.1%, (ii) Islamic banking at 12.2%, and (iii) NOII at 42.3%. Stripping of the PNG sale, CNP growth would have been at 8.2%.

Opex and allowances for impairment also surged by 7.6% and 121.9%, respectively. CIR improved as it fell by 4.2ppts to 45.3%.

NIMs improved by 16bpts to 2.43%

Loans and deposits continued to grow, at 7.4% and 5.3% (includes forex fluctuations), respectively, with CASA ratio flattish at 35.0%.

LDR jumped by another 190bpts as loans growth outpaced deposit growth.

Asset quality improves as GIL fell by 2bpts to 1.54% but credit costs surged by 33bpts as allowances for impairment swelled.

Outlook

Facing a challenging environment, the Group is focusing on managing its balance sheet and liquidity, selective on asset growth and proactive management of asset quality. The Group is expected to be aggressive on its deposit taking, thus expects further downward pressure on NIMs.

Despite on-going challenges, management maintained its FY15 guidance: (i) ROE to come in at 12-13% (Previously: 13-14%; Kenanga: 12%), (ii) Total loans growth of 8-9% (Previously: 9-10% &; Kenanga: 8.5%), (iii) Total deposits growth of 10-11% (Previously: 9-10%; Kenanga: +7.5%)

We also maintained our assumptions with: (i) NIMs at 2.13%, (ii) CIR at 47.5%, and (iii) Credit charge ratio of 30bpts.

As for FY16, we make no changes with: (i) ROE to register at a weaker rate of 11.3%, (ii) loans/deposit growth of 8.0%/7.0% , (iii) credit charge ratio at 0.31%, and( iv) CIR to improve slightly at 47.3%.

Change to Forecasts

Since 9M15 results were in line with expectations, we make no changes to our FY15E/FY16E earnings of RM6,817m/RM7,021m.

Rating

Maintain OUTPERFORM

We like MAYBANK for its: (i) superior yield offerings of ~7%, and (ii) extensive regional exposure in ASEAN-5.

Valuation

As we have not made changes to our assumptions, our TP remains the same at RM9.74.

This TP is based on 1.5x FY16 P/B. The lower P/B multiple is to reflect slower growth and weaker ROE generation moving forward.

The assumptions used to derive our GGM-TP are: (i) COE of 8.5%, (ii) FY16 ROE of 11.3% and (iii) terminal growth rate of 3%.

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 Research - 27 Nov 2015