1QFY21 PATAMI of RM2.39b (+17% YoY) was above expectations thanks to better-than-expected NIMs with some improvements in CIR. The group looks to continue to enjoy access to cheap funds with its income streams to progressively gain traction in line with regional economic recovery. Maintain OUTPERFORM with a higher GGM-derived PBV TP of RM10.75 (from RM10.60) as we raise FY21E/FY22E earnings by 9%/5%.

1QFY21 above expectations. 1QFY21 reported PATAMI of RM2.39b is above expectations, making up 32% on both ours and consensus full-year estimates. The positive deviation was led by higher-than-expected NIMs and lower-than- expected CIR achieved during the quarter. No dividends were declared, as expected as the group typically pays its dividends semi-annually.

YoY, 3MFY21 total income inched by 2% to RM6.83b. NII was lifted by 6% due to better NIMs (est. 2.34%, +6 bps) backed by lower cost of funds. However, NOII fell by 7% as fee-based income was softer against 3MFY20’s lumpy disposal gains and wider insurance-related expenses. Operating expenses declined by 4% mainly from savings in marketing and admin expenses (also owing to some reversals), reducing CIR to 41.3% (-2.5 ppt) and improving PPOP by 6%. Impairment for the quarter also eased by 12%, thanks to preemptive provisioning in 4QFY20 to account for further Covid-19 implications. Credit cost came in at c.64 bps (-10 bps). Meanwhile, GIL reported healthier at 2.2% (-0.5ppt). Overall, this led to 3MFY21 PATAMI came in at RM2.39b (+17%). On another note, CASA-to-deposit ratio registered at 43% (+6.2 ppt), signifying high consumer demand for liquidity.

QoQ, 1QFY21 total income increased by 8% thanks to stronger performance in both NII (+8%) on the same lower cost of funds and NOII (+10%) thanks to solid contributions from insurance arms. 1QFY21 PATAMI increased by 56%, mainly due to higher loan allowances provided for during 4QFY20.

Key briefing highlights. Despite ongoing movement controls, management is confident that the group will perform favourably during the year. Regionally, management anticipates gradual economic recovery to be sustained by higher rates of vaccination. Alongside its strong market presence, this could boost its share in the SME space. The increase in adoption of its digital solutions could also gain stickier consumers while also widening the group’s digital ecosystem (i.e. MAE). With OPR expected to be stable and cost of funds being cheaper, NIMs are expected to register an overall improvement for the year, where management is guiding to be +10-15 bps. With a firm expectation on income growth met with prudent cost measures, management lowered their CIR guidance to 45-46% from 46-47%. Recall that the group inked a 5-year plan this year to achieve: (i) sustainable ROEs of 13-15%; (ii) CIR of less than 45%; and (iii) EPS of above 100.0 sen by 2025.

Post-results, we raise our FY21E/FY22E earnings by 9.0%/5.3% as we account for more optimistic NIMs.

Maintain OUTPERFORM with a higher TP of RM10.75 (from RM10.60). Our TP is based on an unchanged FY22E GGM-derived PBV of 1.37x (1SD above 5- year mean) but rose on book value gains from our earnings adjustments. MAYBANK is still our favourite for the banking sector for its most favourable risk-to-reward with the highest dividend yield (7-8%) in the industry paired by solid ROE prospects. Its market leading position in loans and deposits should prove beneficial in an economic recovery phase while its CASA-to-deposit ratio of c.40% would ease access to funds.

Source: Kenanga Research - 28 May 2021