Maybank’s 1Q13 results were within our and consensus expectations. Corporate loan growth (domestic and Indonesia) was soft, but this was cushioned by growth from the domestic consumer business and low credit cost overall. Loan and capital market pipelines remain healthy, which underpins Maybank’s expectations of stronger quarters ahead. Maintain BUY with fair value of MYR11.40 based on 15x CY14 EPS.

- 1Q13 net profit rises 12% y-o-y (3% q-o-q) to MYR1.51bn. Maybank’s 1Q13 net profit was within our and consensus expectations, accounting for 24% of our and consensus full-year estimates. 1Q13 pre-impairment operating profit was 8% below our estimates, when annualised, but this was cushioned by credit cost of just 11bps (annualised) vs. our 30bps assumption. With the removal of the election overhang, we expect corporate activities to pick up in the quarters ahead, which would be positive for operating income. This, however, would be tempered by expectations of credit cost moving towards more normalised levels.

- Results highlights. Y-o-Y net profit growth was driven by a combination of: 1) Healthy net interest income growth of 10% y-o-y. Y-o-Y loan growth was 12.9% while NIM held up quite well, down just 4bps y-o-y; and 2) Lower credit cost of 11bps vs. 1Q12: 26bps (figures annualised). CIR was stable y-o-y at 51.4%. Q-o-Q, net profit growth was mainly due to lower credit cost (4Q12: 21bps, annualised). Maybank disclosed 4Q12 post-MFRS10 figures that include NIM expansion of +2bps q-o-q and CIR of 50.5%. Annualised loan growth was just 5.9% as corporate lending domestically and Indonesia were soft. Domestic consumer loan growth and overseas growth in Hong Kong and Thailand, however, were buoyant. Finally, absolute gross impaired loans rose 7.5% q-o-q resulting in the gross impaired loan ratio rising 10bps q-o-q to 1.88%. This was due to certain corporates in the manufacturing sector, but Maybank did not think this was a systemic issue. Also, as noted above, 1Q13 credit cost stayed low, which Maybank attributed to sufficient collateralisation.

- Forecasts and Investment Case. We tweaked down our FY13-14 EPS projections by up to 3%, after we model in potential new shares from the DRP. Apart from that, we have also rolled forward valuations to 2014. All-in, we have raised our fair value to MYR11.40 from MYR10.90, based on unchanged target PER of 15x. BUY call maintained.

1QFY12/13 Results Review

1Q13 net profit rises 12% y-o-y (3% q-o-q) to MYR1.51bn. Maybank’s 1Q13 net profit was within our and consensus expectations, accounting for 24% of our and consensus full-year estimates. 1Q13 pre-impairment operating profit was 8% below our estimates, when annualised, but this was cushioned by credit cost of just 11bps (annualised) vs. our 30bps assumption. With the removal of the election overhang, we expect corporate activities to pick up in the quarters ahead, which would be positive for operating income. This, however, would be tempered by expectations of credit cost moving towards more normalised levels.

Result highlights. Note that following the adoption of MFRS10 – Consolidated Financial Statements, Maybank has changed the presentation for “Net income from insurance and takaful business” in the income statement. Other income and other expenses that used to form part of “Net income from insurance and takaful business” have now been reclassified to the respective line items in the income statement, but there is no impact to bottomline. The reclassifications have been reflected in the 1Q12 and 1Q13 results below (see Figure 1), but not 4Q12 results. Thus, q-o-q comparison may be less meaningful.

Y-o-Y net profit growth was driven by a combination of: 1) Healthy net interest income growth of 10% y-o-y. Y-o-Y loan growth was 12.9% while NIM held up quite well, down an estimated 4bps y-o-y due to dilution in asset yield but cushioned by higher LDR of 89% vs. 1Q12: 87%; and 2) Lower credit cost of 11bps vs. 1Q12: 26bps (figures annualised). Non-interest income was down 2% y-o-y mainly due to mtm losses from derivatives of MYR207m (vs. MYR138m gain in 1Q12) while CIR was stable at 51.4%. Q-o-Q, net profit growth was mainly due to lower credit cost (4Q12: 21bps, annualised), partly offset by a higher effective tax rate of 26.7% vs. 4Q12: 21.1%. Maybank disclosed 4Q12 post-MFRS10 figures that include NIM expansion of +2bps q-o-q and CIR of 50.5%.

Loan and deposit growth. Annualised loan growth was just 5.9% (+12.9% y-o-y), below the 12% target and our 10% assumption. Domestic loan base expanded by 5.2% (annualised) as growth was impacted by corporates adopting a wait-and-see attitude leading up to the general election (corporate loan growth: -5.3%, annualised). However, domestic consumer loan growth was healthy, +11.8% (annualised) thanks to mortgages, auto loans and ASB financing, while the SME segment (+15.8%, annualised, although from a smaller base) continued to reflect the fruits of the revamped retail SME business model. Overseas loan growth was at a faster clip of 7.1% (annualised), led by Hong Kong and Thailand. Loan base in Indonesia was down 1.2% annualised, mainly due to the non-consumer segment. On the whole, management retained the 12% loan growth target on expectations of a pickup in credit demand from corporates in 2H13, now that the general election overhang has been removed. Meanwhile, total deposits rose by an annualised pace of 9.5% (+11% y-o-y) due to strong fixed and savings deposit growth. By geography, overseas deposits rose 17% while domestic deposits grew 5.6% (figures annualised), with the slower domestic deposit growth broadly in tandem with loan growth. Overall, both LDR and CASA ratio remained broadly stable q-o-q at 89% (end-Dec ’12: 89.8%) and 34.9% (end-4Q12: 35.2%).

Asset quality and capital ratios. In our view, the main soft spot was asset quality. Absolute gross impaired loans rose 7.5% q-o-q (-13% y-o-y) as impaired loan formation surged to 132bps (4Q12: 82bps; 1Q12: 60bps). Management attributed the rise to certain corporates in the manufacturing sector, but did not think this was systemic as the corporates were from different industries. Also, as noted above, 1Q13 credit cost stayed low, notwithstanding the rise in impaired loans. Maybank attributed this to sufficient collateralisation. Overall, the gross impaired loan ratio deteriorated to 1.88% from 1.78% as at end-Dec ‘12 while LLC dropped to 99% from 105.6% at end-2012. Finally, Maybank disclosed fully-loaded group and bank CET1 ratios of 9.2% and 7.7% respectively, assuming a dividend reinvestment rate of 85%.

Briefing Highlights

Maybank retained their KPIs for this year, which include ROE of 15% and loan growth of 12%, on expectations of a pickup in income in the quarters ahead. This would mainly be supported by the corporate segment, both domestic and Indonesia. There was also no change to the NIM guidance of 10bps compression and 30bps credit cost for this year. 

There were no updates with respect to local incorporation in Singapore. The focus there appears to be broad-based, i.e. both retail and businesses, while client coverage will also be intensified.

Maybank plans to continue with its high dividend payout, as long as the take up rate for its DRP is strong. Maybank had announced a take up rate of 85.7% for the recent 4Q12 final dividend. This was slightly below the previous low of 86.1% for the 3rd DRP, although we think it is still too early to tell whether the lower take up rate this time round was due to the rise in foreign shareholding levels. Foreign shareholding was slightly above 24% last month, up from 18% in Nov ’12 and 14% in Jan ’14.

Finally, with respect to the search for a successor for Dato’ Sri Abdul Wahid, Maybank said the search was still ongoing but the full management team is in place and it will still be business as usual.

Risks

The risks include: 1) Slower-than-expected loan growth; 2) Weaker-than-expected NIMS; 3) Weaker-than-expected capital market activities; 4) Deterioration in asset quality; 5) Adverse foreign exchange movements; and 6) Adverse regulatory changes.

Forecasts

While our FY13-14 net profit projections remain unchanged, we updated our EPS projections for the recent announcement of the 4Q12 DRP take up rate and assumed a take up rate of 88% going forward for Maybank’s DRP (we previously did not model this in). Overall, we tweaked down our FY13-14 EPS projections by up to 3%.

Valuations and Recommendation

Apart from the above changes to our FY13-14 EPS projections, we have also rolled forward our valuation base to 2014. All-in, we have raised our fair value to MYR11.40 from 10.90, based on unchanged target PER of 15x. We like Maybank for its: 1) Strong corporate presence, which means Maybank would be one of the major beneficiaries from the rollout of the ETP; 2) Enlarged footprint of its global wholesale banking business and regional investment banking platform with the Kim Eng deal; and 3) Generous dividend payout and high dividend yields. BUY call maintained.

Source: RHB