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Stay BUY, TP rises to MYR10.60 from MYR10.40, 20% upside with c.7% FY22F yield. Malayan Banking’s 1H22 results are broadly within expectations, with improved asset quality as well as healthy loan and CASA growth being key standout points. Management is maintaining its FY22F guidance, and believes that its ROE target of 9.5-10% remains within reach.
1H22 within expectations. 2Q22 net profit of MYR1.86bn (-9% QoQ, -5% YoY) brought 1H22 earnings to MYR4.35bn (-10% YoY), making up 48% and 46% of our and Street FY22F earnings. Reported 1H22 ROAE was 9.3% (FY21: 9.8%) – below management’s 9.5-10% target. CET-1 was at a solid 14.3% (1Q22: 14.95%). An interim DPS of 28 sen was declared – 21 sen in cash and 7 sen under the Dividend Reinvestment Plan – with the payout ratio at 85.9%.
Against 1Q22, pretax profit fell 10% on the 94% QoQ jump in impairment charges that negated growth in both net fund-based (+6% QoQ, as NIM rose 7bps QoQ) and net fee-based income (+5% QoQ, mainly on higher net fee income from insurance), and a lower CIR of 44.7% from positive JAWs. Net credit cost rose to 60bps (1Q22: 32bps) as pre-emptive provisions were made for vulnerable accounts, given the rising external headwinds. Of impairment charges of MYR1.28bn in 1H22 (-7% YoY), 96% were for corporate exposures. See Figure 1 for the analysis of its 1H22 performance.
FY22F targets unchanged. Management is sticking with its 9.5-10% ROE target, with the catch-up in 2H22 expected to come from lower provisions, recovery in net fee-based income on the expected improvement in trading activities as rates ease, and the NIM expansion premised on a further 50bps hike in the Overnight Policy Rate (OPR). These would help cushion the high single-digit cost growth on higher revenue-related and IT spend. Credit cost guidance is still at 40-50bps. See Figure 2.
Asset quality strengthened. Gross impaired loans (GILs) dropped by 5% QoQ on write-offs, recoveries and low new impaired loan formation. The GIL ratio improved further to 1.81% in 2Q22 (1Q22: 1.95%; 4Q21: 1.99%). With pre-emptive provisions taken in 2Q22, which were mainly for oil & gas (O&G) exposures, the LLC rose to 122.3% (1Q22: 106.4%) while coverage for sizeable leisure and O&G impairment stood at c.80%. At end-June, management overlay stood at MYR1.73bn. In Malaysia, loans under repayment assistance (LURA) fell to 5.9% of loans at end-July, from 7.6% last April. Group O&G loans and fixed income exposures ticked up to 3.08% in 2Q22 (1Q22: 2.98%), with the GIL ratio at 23% (1Q22: 24%).
Earnings and TP. We raise FY23-24F net profit by 4-7% while FY22F earnings are little changed (Figure 3). Our TP also ticks up to MYR10.60 from MYR10.40, with the earnings forecast upgrade resulting in higher ROE and BVPS. Our TP incorporates a 4% ESG premium, based on RHB’s in-house methodology. The intrinsic value of MYR10.22 is based on a GGM-derived 1.38x P/BV vs the historical mean of 1.32x (Figure 4).
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....