Period

4Q15/12M15

Actual vs. Expectations

Maybank’s 12M15 CNP of RM6,835.8m (+1.8%) was in line with our/market estimates, making up 100%/102% of respective full-year forecasts. The improved performance was due to improvement from Net Interest Income (NII) and Islamic Banking.

Dividends

A final DPS of 30.0 sen/share was declared raising total FY2015 DPS to 54.0 sen/share. We had expected a DPS of 57 sen/share.

Key Results Highlights

12M15 vs. 12M14, YoY

12M15 PAT improved by 1.8% attributed to improvements in total income by 14.6% (12M14: +2.5%)

Total Income improved 11.3% (12M14: 0.0%) attributed to: (i) Net interest income (NII) at +14.5% (12M14+1.2%); (ii) Non-Interest Income (NOII) at +11.3% (12M14: -9.6%), and (iii) Islamic banking at +20.4% (12M14: +16.4%).

Higher opex at +12.9% (12M14: +2.1%) and higher allowance for impairment losses at +320.5% (12M14: -45.1%) subdued PAT growth to +1.8%.

Cost to Income ratio (CIR) was marginally higher by 1ppts to 49.2% (vs industry’s 45.5% and our expectations of 47.5%).

NIMs compressed by 9bps to 2.18% vs. our estimates of 2.13%.

At the PBT level, Malaysia is still the biggest contributor, accounting for 73% (12M14: 71%) followed by Singapore at 16% (12M14: 14%) and Indonesia at 4% (12M14: 3%).

Loans and deposits grew by 13.3% and 11.1%, respectively, (12M14: +12.3% and +8.8%) vs. industry loan/deposit growth of 7.9%/1.8%. Both growth rates are also higher than our earlier assumptions of 8.5%/7.5%. LDR was up by 2ppts to 93.2% as loans outpaced deposits. CASA fell by 3ppts to 32.5%.

More than half of the loans were domestic-based with Malaysia at 56% (12M14: 60%) followed by Singapore at 26% (12M14: 23%) and Indonesia at 8% (12M14: 8%).

Asset deteriorated as GIL ratio went up by 34bps to 1.86%. Non-performing loans surged 37.2% outpacing loans growth. Deterioration was led mostly from the purchase of residential property, motor vehicles and working capital segment.

Loan loss coverage fell 24ppts to 72.0% below the industry coverage of 96.2%.

Credit cost was up by 18bps to 0.38% (we had assumed it to be at 30bps).

Capital position continued to improve with Capital CET1 and CAR improving by 110bpts and 150bps to 12.8% and 17.7%, respectively, before proposed dividend. After the proposed dividends, they would still be above regulatory requirements at 12.5% and 17.4%, respectively.

ROE was at 11.7% (vs. our forecast of 12.2% and management’s target of 12%-13%).

3Q15 vs. 2Q15, QoQ

On a quarterly basis, PAT fell 13.0% on the back of fall in: (i) Total income at -2.3%; (ii) higher opex at 6.7% despite declining allowances for impairment by 30.1%.

CIR surged by another 4ppts to 49.4%.

NIMs compressed by 11bpts to 2.32%

Loans and deposits were on opposite ends with loans declining 1.1% vs. deposits growth of 3.8%. CASA ratio fell by 2.5ppst to 32.5%.

Due to stronger deposits. LDR fell by 4.5ppts to 92.7%.

Asset quality continued to deteriorate as GIL went up by another 32bps to 1.9% but credit costs fell by 20bps as allowances for impairments receded for the quarter.

Outlook

Facing a challenging environment, the Group is focusing on managing its balance sheet and liquidity, selective 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.

Management introduced its FY16 guidance: (i) ROE to come in at 11-12% (Kenanga: 11.0%), (ii) Total loans growth of 8-9% (Kenanga: 8.0%), (iii) Total deposits growth of 10-11% (Kenanga: +10%)

We also assumed: (i) NIMs at 2.1%, (ii) CIR at 47%, and (iii) Credit charge ratio of 45bps (Management; 40- 50bps).

As for FY17, we assumed: (i) ROE to register at a higher rate of 13.0%, (ii) loans/deposit growth of 8.2%/9.7%, (iii) credit charge ratio at 0.42%, and( iv) CIR to improve slightly at 46%.

Change to Forecasts

Our FY16E are revised downwards to RM6,872m due to higher credit costs. We introduced our FY17 numbers based on higher loan/deposit numbers but lower credit costs and CIR.

Rating

Maintain OUTPERFORM

We like MAYBANK for its: (i) extensive regional exposure in ASEAN-5, and (ii) ability to attract deposits despite pricing competition.

Valuation

Our TP is revised downwards RM9.33 (previously RM9.74).

This TP is based on 1.4x FY16 P/B (from 1.5x 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 10.8% previously ( 11.3%), and (iii) terminal growth rate of 3.0%).

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 - 26 Feb 2016