Kenanga Research & Investment

Malayan Banking - Compression Imminent

Publish date: Tue, 28 Feb 2023, 10:20 AM

FY22 net profit of RM8.23b (+2%) and full-year dividend of 58.0 sen came within expectations. Deposits competition will put pressure on profitability though the lapsing of prosperity tax and possible writebacks would translate to substantial growth in the coming year. Maintain OUTPERFORM but with a lower GGM-derived PBV TP of RM10.10 (from RM10.40) on more moderate FY24F BVPS. MAYBANK is still a Top Pick for 1QCY23 for dividend yield sustainability.

FY22 within expectations. FY22 net earnings of RM8.23b is in line with our full-year forecast (97%) and consensus full-year estimate (99%). An interim dividend of 30.0 sen was declared, firming the full-year payment to 58.0 sen, close to our anticipated 60.0 sen (85% payout).

YoY, FY22 total income grew 9% led by stronger net interest income from a larger loans book (+6%) and expanding net interest margins (2.43%, +8bps) from interest rates upcycle. Meanwhile, non-interest income also grew by 9% primarily thanks to positive treasury and investment performance. Cost-income ratio rose to 46.3% (+10ppts) mostly due to higher personnel expenses. Credit cost moderated to 37 bps (-12bps) as asset quality concerns eased, which the group indicated is still absence the utilisation of past overlays. Pre-tax profit registered a 13% expansion, but due to the incurrence of one-off prosperity tax, FY22 net profit only grew modestly to RM8.23b (+2%).

Briefing highlights. The group’s FY22 report card was well met but we are now cautious with the delivery of FY23 given the rise of various market factors. GDP output is expected to moderate as pent-up spending seems to be eroding, which could translate to a slower loan growth in all key segments. Meanwhile, interest rate dynamics are now skewing towards higher cost of funds as deposit repricing is catching up. In addition to greater competition in this space, the group believes that margin erosion is inevitable with a 5-8bps range in mind. On the flipside, asset quality is seen to be at a much healthier level with writebacks being a fair consideration around 2HFY23. Otherwise, an improved credit cost guidance of 35-40bps (from 40-50bps in FY22) is expected to be reasonable. However, to fuel its M25+ initiatives, we should anticipate an expansion in investments to bolster IT capabilities.

Forecasts. Post results, we toned down our FY23F earnings by 7% mainly from raising our credit cost closer to the group’s expectations. Still, an 11% ROE would also match their target. Meanwhile, we introduce our FY24F numbers which is flattish from FY23F. This is premised on prolonged compression in interest margins despite persistent growth in loans. That said, our assumptions have yet to consider any possible writebacks from the outstanding RM1.7b management overlays, which may surprise earnings.

Maintain OUTPERFORM but with a lower TP of RM10.10 (from RM10.40). We reduce our TP as we roll over our valuation base year to FY24F which now has a lower BVPS of RM7.44 (from RM7.67 in our prior input). That said, our GGM-derived PBV of 1.36x (COE: 9.7%, TG: 3.3%, ROE: 12.0%) remains unchanged

We continue to expect MAYBANK to provide the most sustainable returns via its consistent market leading dividend yields (7%-8%) despite us toning down our numbers. This is further secured by the group’s long-term vision to ensure operational sustainability remains in check, and affirm its leading position in the market. MAYBANK is one of our 1QCY23 Top Picks.

Risks to our call include: (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, (v) adverse currency fluctuations, and (vi) changes in OPR.

Source: Kenanga Research - 28 Feb 2023

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