MAYBANK’s 9MFY19 results were in line despite unexpected higher provisioning in 3Q. Top-line continued to be resiliently driven by retail loans and better NIM. Resilient domestic asset quality mitigated deterioration from its overseas markets. No change in forward earnings; thus, TP at RM9.70 and OUTPERFORM call maintained as valuations are undemanding coupled with a high dividend yield of ~7%.

In line. 9MFY19 CNP of RM5.75b came within our/market expectations, accounting for 72% each of the full-year estimates. No dividend declared as expected.

Higher impairments stemming from overseas markets. YoY, CNP was relatively flat (-0.7%). However top-line growth improved by 510bps at +5.3% underpinned by Islamic (+6.9%) and NOII (+13.9%). NOII was underpinned by unrealized gains on financial investment and assets (+>100%) to RM1,359m. Loans growth of +3.4% (below estimation) but domestic loans growth were above system (+3.8%) at +5.3%, with Indonesia (-1.7%) and Singapore (-0.1%) falling. NIM compression of 6bps was lower than estimate (8-10bps) as re-pricing of domestic deposits occurred in 3Q and the easing of heavier funding costs in Indonesia. Cost discipline maintained as CIR remained relatively flat at 47%. Asset quality saw a slight uptick due to 32bps uptick in NPL to 2.12% coming mostly from Indonesia. Impairment allowances advanced 40% to RM2,024m (translating to a credit charge of 50bps) attributed to rise of new provisioning in Indonesia and Singapore in the 3Q.

QoQ, despite higher provisioning in 3Q (+147%) to RM958m, CNP (+3%) stayed remarkably resilient at RM1,998m. Top-line expanded 10.3% underpinned by broad-based growth; NII and Islamic Income at +9 and +6%, respectively) with NOII at +16%. NOII was driven by investment and trading income (+90%) to RM834m. On a positive note, despite loans marginally flat (-0.1%) fund-based income was driven by strong NIM (+14bps) on account of deposits fully re-priced in Malaysia with easing of higher deposit costs in Indonesia. Further uptick seen in GIL (+5bps) to 2.67% as NPL saw 11bps uptick.

Retail loans, the driver. Despite unexpected asset deterioration in the overseas markets, previous guidance still prevails – with recoveries likely in 4Q. Credit charge of 40-45bps still holds with ROE target of 10- 10.5% reiterated. While deterioration in asset quality is a concern, the domestic market is still resilient unlike its southern neighbours. Asset quality in the domestic market improved by 4bps to 2.07%. The accommodative interest rates in the region will likely spur advancement in the retail space in the absence of business banking; YoY, domestic loans were driven by Mortgages (+10%), SME (+12%) with Auto Finance (+4%) while Indonesia saw unsecured loans advancement (+5%). PBT contribution from the domestic market is strong at 86% with loans at 59%. Recall that management guided in 2018 for maintaining its Indonesian PBT contribution ~7% with gradual reduction in business banking which is currently handsomely rewarded.

Maintain earnings estimates. Our FY19E/FY20E earnings are kept at RM7.9b/RM8.3b with unchanged assumptions; (i) ROE at ~10%, (ii) CIR at 47%, (iii) NIM compression of 8-10bp, (iv) credit costs at 45bps, (v) loans growth <5%, and (vi) flat NOII.

TP and call maintained. TP maintained at RM9.70 on an unchanged FY20 PBV of 1.2x (implying 1SD below mean). The lower multiple 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 - 29 Nov 2019