Kenanga Research & Investment

Malayan Banking - Supported by Tax Normalisation

Publish date: Thu, 25 May 2023, 09:20 AM

1QFY23 net profit of RM2.27b (+11%) was within expectations. We opine the group to deliver moderate income growth on less aggressive loans growth and interest margin suppression as compared to preceding years. That said, improving asset outlook and the lapse of Prosperity Tax should sustain earnings delivery,  barring possible positive surprises should writeback of provisions finally materialise. Maintain OUTPERFORM and GGM-derived PBV  TP of RM10.10.

1QFY23 within expectations. 1QFY23 net earnings of RM2.27b made up 24% each of both our full-year forecast and consensus full-year estimates. No dividend was declared, as expected given the group’s typical biannual payments.

YoY, 1QFY23 saw a flattish net interest income performance. In spite of undergoing four 25 bps OPR hikes, net interest margins (NIMs) did not pick up and instead eroded to 2.22% (-10 bps, -22 bps QoQ) owing to heightened deposits competition. This is on the back of a 5% loans growth. Meanwhile, non-interest income gained 4% as insurance service losses narrowed with the help of investment fair value gains.  Overall, total income was stable (+1%). On the flipside, cost-income  ratio rose to 48.3% (+4.6 ppts) on higher overall expenses to fuel M25+  initiatives but was mainly led by personnel expenses. Credit cost continued to improve to 24 bps (-8 bps) with fewer impairments seen and better recoveries. Pre-tax profit only expanded by 2%, but thanks to the normalisation of effective tax rates post-Prosperity Tax to 23.6% (- 5.9 ppts), net profit reported a 11% improvement to RM2.27b.

Briefing highlights. With May 2023’s OPR hike being largely expected by the group, it sought to keep its guidance for the year.

1. Loans growth still appears supportive as economic prospects remains fair.

2. Deposits space may continue to be volatile in non-domestic territory,  given the group’s smaller presence in Singapore and Indonesia where CASA levels could lose to more reactive and aggressive homebound competitors.

3. Locally, the industry may be inclined to pause or lower funding cost,  indicating possible sequential increments to NIMs to meet the group’s 5-8 bps compression guidance.

4. Top-ups in specific overlays are still necessary as minor deterioration in quality is seen in the consumers and SME portfolio.  However, past delinquencies are also seeing encouraging recoveries which should result in net improvements to credit charges. Management overlays of RM1.7b have been maintained so far with a FY23 credit cost target of 35 bps-40 bps.

5. M25+ initiatives are expected to be more capex intensive in FY23  particularly on IT investments, leading up to possibly higher depreciation in the coming years.

Forecasts. Post results, our FY23F/FY24F earnings are largely unchanged safe for 1QFY23’s inputs.

Maintain OUTPERFORM and TP of RM10.10. Our TP is premised on  an GGM-derived FY24F PBV of 1.36x (COE: 9.7%, TG: 3.3%, ROE:  12.0%). 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.

Source: Kenanga Research - 25 May 2023

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