• Reiterate BUY, TP drops to MYR9.65 from MYR10.20, 11% upside with c.7% FY23F yield. We raise our COE assumption for Malayan Banking to reflect the persistent uncertainties in the macroeconomic environment. There is no change to our earnings forecasts and, as such, the adjustment of our TP reflects a lower implied fair P/BV. Maybank has a strong, established track record with respect to shareholder returns. In a range- bound market, its dividend yields should be the key driver of total returns.

• Lifting the ROE overhang with cash dividends. While Maybank’s 4Q22 results were within expectations, its solid CET-1 of 14.8% allowed it to maintain its overall dividend payout ratio (c. 84.5%), albeit with a higher net cash payout portion of 77% (FY21: 58%). Management said that it would be comfortable with a CET-1 ratio of 13%. Premised on this, we think capital management will be an ongoing key theme for the group ahead. For FY23, Maybank’s targets are: i) ROE of 10.5-11%, ii) NIM compression of 5-8bps, iii) CIR of up to 47.5%, and iv) credit cost of 35-40bps. No specific guidance was given on loans, but Maybank expects to grow in line with industry growth. Key near-term earnings pressure should be NIM compression, in our view, but we expect this headwind to ease in the back half of 2023.

• Raising COE assumption to reflect uncertain macroeconomic environment. Amid lingering macroeconomic uncertainties and volatilities, we are raising our COE assumption to 9.1% from 8.8%. Consequently, our TP drops to MYR9.65 from MYR10.20, in tandem with the revision in our GGM-derived intrinsic value to MYR9.26 (from MYR9.77). Our TP also incorporates an ESG premium of 4%, based on our in-house ESG methodology. The intrinsic value is based on a GGM-derived P/BV of 1.25x, ie slightly below the stock’s historical mean of 1.32x. This report marks the transfer of coverage on this stock to David Chong.

Source: RHB Research - 9 Mar 2023