We remain assured by the long-term viability of group operations and market standing. Its recent M25+ updates focus on building a more sustainable foundation that could further embolden the stock as a solid long-term yield provider, albeit with more modest ROE readings. BUY with a TP of RM10.40. In addition to the lower earnings, we revised our GGM-derived PBV to 1.36x (from 1.43x) owing to slightly lower ROE inputs at 12.0% from 12.5%. We firmly believe that MAYBANK could provide the most sustainable returns via its consistently leading dividend yields (7-8%).

The group made a heavy one-off loan provision during 2QFY22 in relation to specific leisure and O&G accounts, leading to total management overlays of RM1.73bn. For the time being, the group will remain prudent with its provisions management as the ongoing interest rate upcycle may trigger repayment issues in the subsequent periods. The healthier economic landscape would allow the group to keep its 40-50bps credit cost guidance for FY22.

Amongst its peers, MAYBANK commands the highest fixed rate loans proportion (27% vs. average 17%), which is attributed to its strong auto financing presence in Malaysia and fixed rate mortgage facilities in Indonesia. The majority of these accounts were captured pre-pandemic and hence should not be stretching margins (i.e. diminishing benefit as opposed to expanding losses).

On the deposits front, the group also possess one of the highest CASA ratios (44%) which it anticipates progressive migration towards short-term fixed deposit products. However, the group may not be overly aggressive in price matching strategies, likely awaiting rates to stabilise.

To achieve its updated M25+ growth target, the group seeks to employ heavier technology spend to build more engaging capabilities. The group opines that acquisitions for inorganic growth are not likely a priority as more sustainable results could be delivered with stronger in-house resources. However, this could entail some ROE pressure in the near-term in favour of more sustainable performances, resulting in the group trimming its FY25 ROE guidance to 11-12% from 13-15%.

Source: Rakuten Research - 2 Nov 2022