• BUY, new TP of MYR10.20 from MYR10.60, 19% upside with c.7% FY22F yield. Malayan Banking’s 9M22 results are in line with expectations, with healthy topline growth and improved asset quality in 3Q22 being key positives. Management maintained its FY22 guidance, except for a slight upward revision to NIM. FY23-24F ROE ticked down to c.11% (from 12%) after factoring in additional investments under the group’s refined Five-Year Strategy: M25+. Still, with P/BV at 1.1x, the risk-reward appears compelling.

• 9M22 within expectations. 3Q22 net profit of MYR2.17bn (+17% QoQ, +28% YoY) lifted 9M22 earnings to MYR6.07bn (+0.5% YoY), accounting for 75% and 73% of our and Street FY22F earnings. Reported 9M22 ROAE was 9.6% (FY21: 9.8%) – at the lower end of management’s 9.5-10% target. CET- 1 was lower at 13.8% (2Q22: 14.3%), following the payment of first interim DPS of 28 sen. Against 2Q22, pretax profit rose 20% on the 27% QoQ drop in impairment charges and 8.5% increase in operating income that mitigated the 11% QoQ increase in operating expenses.

• Loan growth healthy, NIM muted. Net fund-based income gained 2% QoQ in 3Q22 on healthy loan growth (+8% YoY), particularly in Malaysia (+8% YoY) and Indonesia (+13% YoY). NIM was, however, muted – up 1bp QoQ to 2.42%. Management expects decent loan growth in Malaysia and Indonesia in 4Q22, but some softening in Singapore, given the weakening yields there. Given the NIM expansion of 8bps for 9M22, management made a slight revision to its FY22 guidance – NIM expansion will be above 5bps. Maybank expects one more rate hike of 25bps in 1Q23 for Malaysia.

• Asset quality improved. GILs were down 4% QoQ with the increase in Malaysia (+15.5% QoQ mainly from business segments) offset by declines in US, HK and Indonesia. The group GIL ratio improved to 1.70% in 3Q22 (2Q22: 1.81%; 4Q21: 1.99%) while LLC was stable QoQ at 122.3%. With asset quality resilient and no additional pre-emptive provisions, net credit cost was a lower 41bps in 3Q22 (2Q22: 59bps). FY22 credit cost guidance is unchanged at 40-50bps (9M22: 44bps). Management has no plans to release outstanding overlays of MYR1.7bn as it continues to observe repayment conduct, given the rise in interest rates.

• Other highlights. Group deposits were flattish QoQ as growth in Malaysia was offset by declines in Singapore and Indonesia. The CASA ratio fell to 43.8%, from 46.7% in 2Q22, as rising rates led to a shift of funds to fixed deposits. Net fee-based income jumped 28% QoQ in 3Q22 boosted by FX gains and lower marked-to-market (MTM) losses on financial assets and investments. Core fee income was relatively stable QoQ.

• Earnings and TP. We trim net profit by 8-9% for FY23-24F (mainly for higher investments under M25+) and a small 1% for FY22F (Figure 3). Our TP is lowered to MYR10.20 from MYR10.60, with a 4% ESG premium based on RHB’s in-house methodology. The intrinsic value of MYR9.84 is based on a GGM-derived 1.33x P/BV vs the historical mean of 1.32x (Figure 4).

Source: RHB Research - 24 Nov 2022