MAYBANK’s 1HFY23 net profit (+26%) and interim dividend were within expectations. The group’s deep NIM compression will hopefully subside from 2HFY23 onwards with a better sense of asset quality allowing the group to lower its credit cost guidance. While we maintain our GGM-derived PBV TP of RM9.25, we downgrade our call to MP (from OP) as we believe current price points have fairly reflected the stock’s dividend and ROE sustainability.

1HFY23 within expectations. MAYBANK’s 1HFY23 net earnings of RM4.60b made up 48% of our full-year forecast and 49% of consensus full-year estimate. An interim dividend of 29.0 sen (76% payout) is also within our expectations, against our anticipated 65.0 sen (c.80% payout) for FY23.

YoY, 1HFY23 net interest income fell slightly (-2%) as NIMs were compressed to 2.24bps (-14bps) following heavy competition for funds amidst a loans growth of 5%. Meanwhile, non-interest income expanded by 56% on significantly stronger treasury and forex gains. On the flipside, cost-income ratio rose to 47.5% (+2.7ppts) due to higher personnel costs from revised collective agreements. Credit cost for the group improved to 31bps (-14bps) thanks to write-backs from certain corporate accounts with more stable repayment pattern. All in and alongside lower effective taxes, 1HFY23 reported net profit of RM4.60b (+26%).

Briefing’s highlights. The group reviewed its 1HFY23 performance and revisited several headline targets, having a better sense of the landscape ahead.

1. FY23 NIMs will likely remain hurt by the intensive deposits competition seen following the progressive OPR hikes in the past year. Previously guiding a 5bps compression, a widened erosion of 25bps is now expected. That said, recovery could be seen in the coming quarters as product pricing are gradually rationalising.

2. With better confidence on the standing of its asset quality, the group improves its FY23 credit cost outlook to close at 30-35bps (from 35- 40bps). As it had written back provisions on certain accounts, we opine the group could be more optimistic with its repayment collections for year. That said, the group remain watchful on certain accounts (SMEs) which may be impacted by slowing economic macros and hence maintain its broader management overlay of RM1.7b for now.

3. Loans growth is still expected to remain on track with the industry but is hopeful to see stronger traction in the coming quarters from its Singaporean market.

4. Deposits management is becoming more targeted with the nonrenewal of expiring high-rate deposits. Although this may skew loans-deposits ratio upwards, it would keep NIMs more sustainable with capital still adequate to fuel lending.

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

Downgrade to MARKET PERFORM (from OUTPERFORM) with TP at RM9.25 kept. Our TP is premised on a GGM-derived FY24F PBV of 1.24x (COE: 10.4%, TG: 3.5%, ROE: 12.0%). MAYBANK is expected to demonstrate operational resilience whilst sustaining its position as the leading bank in terms of market share. However, current price points appear to have diluted its dividend yield proposition which previously stood at c.8%. We opine newer investors may seek for higher growth prospects with yield surprises amongst its peers.

Risks to our call include: (i) higher/lower-than-expected interest margin, (ii) higher/lower-than-expected loans growth, (iii) worsethan-expected deterioration in asset quality, (iv) slowdown in capital market activities, (v) currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 1 Sept 2023