• Cut to NEUTRAL from Buy, new MYR9.80 TP from MYR9.45, 8% upside. Malayan Banking’s 2Q23 results are in line. Moderating NIM and opex pressures appear in store for 2H23 with stable asset quality, but the elevated 2Q non-II may not be sustained. It cut FY23 NIM guidance to a 25bps compression (from 5-8bps), cushioned by lower expected credit cost. No change to the 10.5-11% ROE guidance. While the stock has done well vs FBM KLCI and Malaysia banks, upside potential is now limited – hence our downgrade. Still, its dividend yields of 6-7% should appeal to yield seekers.

• 2Q23 net profit rose 45% YoY or 3% QoQ to MYR2.3bn, bringing 1H23 net profit to MYR4.6bn (+26% YoY), ie at c.49-50% of our and Street FY23F earnings. 2Q23 PBT rose 10% QoQ, thanks to a 63% QoQ jump in non-II on marked-to-market (MTM) gains. This was partly offset by a 12% QoQ rise in opex, as negotiations on the new collective agreement (CA) for 2021-2023 was completed in May. NII was stable as NIM pressures eased, while credit cost was higher QoQ at 38bps (1Q23: 24bps) as Maybank topped up provisioning and made specific overlays. The reported ROAE of 10.9% is tracking Maybank’s 10.5-11% target, while CET-1 was solid at 15.2% (1Q23: 15.1%). An interim, all-cash DPS of 29 sen was declared (76% payout vs 1H22: 28 sen; 67.6% cash payout ratio).

• NIM pressure easing. NIM fell 5bps QoQ (1Q23: -20bps QoQ) with a 17bps QoQ rise in average yield (aided by the 25bps increase in the overnight policy rate in May) more than offset by a 22bps hike in average funding cost. We understand that Maybank had allowed costlier wholesale deposits to run off the books during the quarter, which helped keep a lid on funding cost pressures (LDR rose 170bps QoQ to estimated 90.8%). With 1H23 NIM down 23bps vs the 2022 NIM of 2.39%, Maybank is now guiding for a c.25bps NIM compression (5-8bps drop previously). This suggests stable NIMs ahead.

• Gross loans expanded 5% YoY (+2% QoQ), with domestic and overseas loans expanding by 5% and 7% YoY. Annualised loan growth was 6%, predominantly driven by overseas. Meanwhile, total deposits rose 3% YoY (flat QoQ) while annualised deposit growth was 5%. CASA slipped 18% YoY or 4% QoQ as depositors continued to turn to higher yields. As such, group CASA ratio at end-June eased to 37.7% from 39.1% in Mar 2023.

• Asset quality held up with GILs flat QoQ (-15% YoY) as higher write-offs (c. MYR1.3bn) offset a slight rise in NPL formation (78bps vs 1Q23: 54bps). The GIL ratio was stable at 1.5% in 2Q23 (1Q23: 1.5%, 2Q22: 1.8%) while LLC eased to 126% (1Q23: 134%, 2Q22: 124%). Maybank remains watchful over the SME segment, especially post exit from repayment assistance programmes. LLC is now at >60% for this segment. The bulk of the MYR1.7bn in overlays will likely be retained, given current macroeconomic uncertainties.

• FY23-25F PATMI trimmed by 2-4% mainly to bring our NIM forecasts in line with guidance. However, we upped our TP to MYR9.80 (from MYR9.45) after a roll forward in valuations. Our TP includes a 2% ESG premium.

Source: RHB Securities Research - 1 Sept 2023