We maintain our OUTPERFORM call and GGM-derived PBV TP of RM11.00. MAYBANK’s conservative FY24 targets appear reasonable as we too anticipate some sectorial risk to emerge (i.e. slower loans growth from delayed economic activities, higher inflation). The group stands to maintain its overlays for now, requiring certainty on diminished macro concerns to its loan book repayments. Though dividends could be purely in cash in the near term, yields of 6%-7% are still attractive for the name. Our FY24F/FY25F forecasts are unchanged.

Key takeaways from our recent meeting with MAYBANK are as follows:

- Softer loans landing. The group’s FY24 loans growth target of 6%-7% (FY23: +9%) is fuelled by slower albeit sustainable demand in most fronts, with better support coming from recoveries in consumer spending and economic activity. Its global banking units seek to benefit from regional recoveries as well, predominantly in Indonesia’s high-growth status and rising corporate portfolios.

Domestically, the group expects tailwinds to arise from more secondary mortgage transactions which we opine may lead to more market share as certain competitors may lose appetite to be aggressive in this space. Meanwhile, it is investing in more interface enhancements and feature to keep stickier the SME and business accounts.

That said, as the group is expecting the roll-out of public infrastructure projects to meet its targets, untimely delays may undermine its traction here.

- Margin compression could be yield driven. Coming out of FY23’s severe NIM compression of 27 bps from a tighter deposits landscape, the group believes that similar pressures could have mostly subsided. On the flipside, the group continues to expect NIM compression to occur in FY24, citing up to -5 bps. We believe that this could be tied to higher loans demand across the board in line with better economic prospects, as banks now have to compete more aggressively to retain financing market share.

- Overlay writeback a medium-term aspiration. The group’s overlay reserve of RM1.6b as of 4QFY23 will likely to remain allocated for, in lieu of retail SMEs likely to be vulnerable to macro shifts in the near-term. Adding to this, the group may continue to top up its provisions on these accounts to carry its loan loss coverage ratio to be above 100%. Consideration to write back its excess provisions may only occur in FY25, soonest.

- Building up NOII sustainably. In FY23, the group enjoyed strong NOII (+38%) mainly from surges in treasury gains. While this could moderate in FY24, better traction could be seen from its fee-based streams with wealth management business seeking to penetrate into regional markets. Meanwhile, better insurance results from Etiqa could be on the way, thanks to efforts to drive bancassurance and motor class products.

- Dividends to stay in cash, for now. We saw the group’s lapse in dividend reinvestment scheme to be a surprise in FY23. Going forward, the group looks to continue proposing cash dividends although it mentioned that it was not to manage share base liquidity. That said, while the group has a dividend policy of 40%-60%, we continue to anticipate payments above that with the recent full cash payment to still linger at c.77% of earnings.

Forecast. Post update, we maintain our FY24F/FY25F earnings. Overall, we remain undeterred by near-term headwinds as MAYBANK continues to present itself as a highly sustainable pick, granted also by its leading market share and brand equity. That said, concerns may be more apparent in 2HCY24 with the possible implementation of targeted fuel subsidies likely to spur inflation (with full effects likely cutting into FY25) and whether public infrastructure projects could roll out in a timely manner.

Maintain OUTPERFORM and TP of RM11.00. Our TP is based on an unchanged GGM-derived FY25F PBV of 1.34x (COE: 9.9%, 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. Even without its dividend reinvestment scheme, dividends still look to yield close to c.7% returns.

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) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi) changes to the OPR.

Source: Kenanga Research - 17 Apr 2024