MAYBANK’s 3QFY20 net profit rebounded 107% QoQ on sharply lower loan impairment allowances and in the absence of modification losses, but was marginally down 2% YoY mainly on lower NIM. Interim DPS of 13.5 sen was the main positive surprise. Overall, while there were some bright spots, e.g. NIM bottoming out, healthy NoII levels and tight opex control, loan growth remains sluggish while asset quality could be a concern ahead given a relatively higher proportion of R&R take-up. MARKET PERFORM maintained with higher TP of RM8.60 (from RM7.70).

3QFY20 CNP rebounded 107% QoQ (-2% YoY), bringing 9MFY20 CNP to RM4.9b (-14% YoY). Although 9MFY20 PATMI appears to be a strong beat, accounting for 82% of our, and 83% of consensus, FY20E net profit, we consider the results to be in line given the wide range of credit cost guidance (of 75-100bps vs 3QFY20/9MFY20: 62bps/89bps). Also, the unchanged FY20 ROE guidance of 7.5% (vs 9MFY20 annualised ROE of 8%) suggests that a weaker 4Q could be in store.

Results’ highlights. Stripping out last quarter’s Day One modification loss of RM314m, 3QFY20 pre-tax profit jumped 66% QoQ (-1% YoY) thanks to stronger NoII (+5% QoQ on core fees from improved activities and sequentially better underwriting performance from insurance) and lower loan impairments (-54% QoQ/-16% YoY). Otherwise, net interest income was flattish QoQ (-8% YoY) on an estimated marginal 3bps QoQ - likely due to some build-up in liquidity with QoQ deposit growth at 3% vs a flat loan base. Domestic loans were up 3% QoQ (+5% YoY), offset by the decline in key markets such as Singapore (-2% QoQ/-8% YoY) and Indonesia (-12% QoQ/-20% YoY). Meanwhile opex remained well controlled (flat QoQ/-9% YoY) that led to a lower CIR of 44.5% in 3QFY20 (2QFY20: 45.4%; 3QFY19: 45.6%).

Asset quality improved with GIL down 5% QoQ (-13% YoY) with sequential improvement across key geographic markets. This resulted in LLC rising to 90% from 83% in 2QFY20 (3QFY19: 73%). Finally, CET-1 ratio remains healthy at 15.3%.

Dividend surprise. A positive surprise was the 13.5 sen interim DPS. Management attributed this to the improved earnings and capital levels, as well as to meet stakeholders’ needs. While the payout ratio was 31%, Maybank said this is not necessary indicative of the full-year payout, which will depend on the outlook and regulator’s approval.

Key briefing highlights. Maybank shared more details on its repayment assistance programme. The take up for consumer/SME and business banking/corporate stood at 7%/22%/28% (as a percentage of the respective loan segments), translating to a total of 15% of domestic loans. This proportion appears to be higher than peers, where based on briefings thus far, their R&R proportion was <10% of domestic loans. As a proportion of group loans, however, the 9% take-up was comparable. Including R&R in Singapore (11%) and Indonesia (21%), we estimate that total R&R loan in key markets was 14%. As for exposure to the B40 segment, Maybank said this was 13% of Malaysia consumer loans. Other guidance updates are: (i) NIM squeeze guidance of 20bps maintained as management said the bulk of deposits have been repriced. Also, further modification losses from the extended 3-month moratorium (for borrowers who have lost jobs) will not be significant, (ii) credit cost maintained at 75-100bps. Management did not guide at which end of the range the full-year credit cost would likely end up, and (iii) FY20 ROE target of 7.5% maintained.

Minor adjustments to FY20-21E PATMI, on better-than-expected opex discipline thus far. No change to our FY20E/FY21E credit cost of 93bps/67bps.

MARKET PERFORM maintained with revised TP of RM8.60 (from RM7.70). Our GGM-derived target FY21E PBV has been raised to 1.12x from 0.98x after we incorporate the following revisions: (i) risk-free rate assumption of 2.7% (from 3.0%), and (ii) 25bps reduction in market risk premium assumption to reflect recent vaccine development for Covid-19. While visibility on asset quality is still hazy and Maybank appears to have a relatively higher proportion of domestic loans requiring assistance, we are positive with respect to its move thus far to bulk up on loan loss reserves. The interim dividend is also a pleasant surprise and should help provide support to its share price in the near-term.

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

Source: Kenanga Research - 30 Nov 2020