MAYBANK’s 6M19 results are within expectations despite lower earnings due to higher NIM compression. Moving forward we tweaked our FY19E slightly lower on account of higher NIM compression and loan loss provisioning. TP revised downwards to RM9.70 but due to undemanding valuations maintained at OUTPERFORM

In line despite lower earnings. 6M19 CNP of RM3.75b came within our/market expectations, accounting for 47%/46% of respective estimates. An interim DPS of 25.0 sen was declared (in line).

Marginal top-line with higher costs. YoY, CNP of RM3,750m fell 2% with a soft top-line (+0.7%) of RM11,750m. While Islamic income surged 7%, NOII was flattish with NII falling 2%. NOII was dragged by weak insurance business due to higher claims (+68% to RM3.91b) mitigated by investment & trading income gains of RM1.1b (mostly coming from MTM securities at RM419m). Loans was at +4.6% (within expectation with domestic at +4.2%, followed by Indonesia at +6.1% and Singapore at +2.3%). However, higher NIM compression (reported: -9bps due to recent OPR cut with higher funding costs mostly from Indonesia and Singapore markets) dragged NII by 2% to RM5,851m. CIR saw a 70bps uptick to 48% (vs industry of 48%) as opex was contained at <+3%. Asset quality seemed to be contained as GIL fell 2bps to 2.62% but NPL saw 20bps uptick to 2.01%. As impairment allowances fell (-9% to RM996m) so do credit charge (-5bps) to 0.39% due to better recoveries.

QoQ, CNP rebounded (+7%) to RM1,940m despite flattish top-line at RM5,890m due to flat opex and lower impairment allowances (-27%) to RM461m. Top-line was driven primarily by NOII ahead at +13% to RM1,589m mostly coming derivatives gain of RM265m. 2Q saw pickup in loans at +2% but NII saw further NIM compression (-11bps). 2Q saw further deterioration in asset quality (since Dec 2018) as GIL added another 14bps to 2.64% with NPL picking up 29bps to 2.01%. However, provisioning fell as credit charge saw 17bps decline to 0.30% (due to better cash-flow/collateral securities).

Management view 2H19 with caution thus, credit charges are raised to 40-45bps (from ~40bps). NIM is expected to remain flat (from 1H19 level) as another OPR cut is expected translating to a 9-10bps compression for FY19. However, we still view that rate cuts will spur retail demand with fiscal spending under the low interest environment benefitting MAYBANK’s business and corporate banking.

Earnings forecasts. Our FY19E earnings are lowered slightly (-2%) to RM7.9b on account of compressed NIM and higher credit charge. Our other conservative assumptions; (i) ROE at <10% (from ~10.5%), (ii) CIR at 47% (unchanged), (iii) NIM compression of 8-10bps (from - 5bps), (iv) credit costs at 45bps (from 40bps), (v) loans growth <5% (unchanged), and (vi) flat NOII (unchanged).

TP revised but call maintained. TP lowered to RM9.70 (from RM10.35) as we ascribe to a lower FY20 PBV of 1.2x (from of 1.28x) implying a 1SD below mean). The lower mmultiples is to reflect the on going uncertainties domestically and externally, coupled with on-going issue from an overseas account. With undemanding valuations coupled with dividend yield that is the most attractive in our banking universe at ~7.0%, we reiterate our OUTPERFORM call.

Source: Kenanga Research - 30 Aug 2019