MAYBANK’s FY19 results were in line despite a sharp slowdown in earnings due to higher provisioning and downside pressure on NIM. Given its regional exposure and the uncertainties ahead, forward earnings is reduced and ascribing to a lower PBV which lowered TP to RM9.05. However, OUTPERFROM call maintained as valuations are undemanding coupled with a stellar dividend yield of 7.6%.

In line. FY19 CNP of RM8.2b is in line with our/market estimate accounting for 103%/104% of respective estimates. A final DPS of 39.0 sen was declared bringing total DPS of 64.0 sen (vs. our expectation of 56.0 sen) hitting its highest dividend pay-out ever at 87%.

YoY, CNP moderated to +1% (-7ppt) as impairment allowances saw +44% uptick to RM2.32b with opex higher at +3% to RM11.6b. Top-line saw better performances at +5% (up by 310bps) to RM24.7b on account of Islamic Banking (+7%) and NOII (+12%) mitigated by flattish NII at RM12b. Loans were soft at +1.2% (below guidance/estimation of <5%) dragged by overseas operations (as Singapore and Indonesia fell 4% and 8%, respectively, mitigated by strong domestic performances of +5%). NIM fell 5bps given the soft interest rate environment and asset and liability competition in Indonesia. Cost discipline maintained as CIR fell 80bps to 48%. Asset quality saw a 23bps uptick in NPL to 2.65% with domestic and Indonesia falling but Singapore saw 44bps uptick to 3.87%. Higher impairment allowances saw 13bps uptick to 0.44% (within guidance) attributed to rise of new provisioning in Indonesia and Singapore in the 2HFY19.

QoQ, 4QFY19 posted its best performance as CNP saw 22% uptick to RM2.56b underpinned by softer impairment allowances (-51%) to RM334m). Top-line was flat at RM1.8b dragged by falling NII (-2%) to RM3.1b and NOII (-1% as investment & trading income and unrealised gain on financial investments fell 75% and 96%, respectively) but mitigated by strong Islamic Banking Income (+6%). Loans were flat with NIM falling 1bps due to higher funding costs in Indonesia and Singapore.

Management guided for a weaker ROE of 10-11% and expects softer domestic GDP but expects both Singapore and Indonesia to be flattish. Credit charge is expected at 45-50bps with the high side on account of COVID-19. NIM is expected to see 5bps compression (assuming 2 rate cuts).

FY20E earnings revised downwards. Our FY20E CNP is revised by - 5% to RM7.9b mainly on account of moderate loans, NIM pressure and higher credit charge ahead in the face of a slower economy and volatilities. We introduce our FY21E earnings, where we expect advances in CNP by +8.0% to RM8.5b on account of a rebound. Our assumptions for FY20E/FY21E are; (i) loans growth at +3%/+4%, (ii) NIMs at -5bps/flat (iii) credit cost of 50bps/41bps, (iv) CIR of 48%/48%, and (v) ROE of 9.3%/9.3%

TP revised to RM9.05 (from 9.70) as we lower our FY20 PBV target to 1.14x (from 1.22x) implying a 1.5SD below mean (to account for the uncertainties and volatilities ahead. We feel this is justifiable given that its forward ROEs are expected remain at <10% (vs. 5-year mean of ~11%). At current level, the stock looks undemanding and with dividend yields at 7.7%, we reiterate our OUTPERFORM call.

Risks to our call are: (i) constricting margins, (ii) lower-than-expected loans and deposits growth rates, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, and (v) adverse currency fluctuations.

Source: Kenanga Research - 28 Feb 2020