Review

• Maybank’s 1H23 net profit rose by 10.7% YoY, supported by an 8.6% YoY increase in total income and lower impairment and allowances. Results came within expectations, representing 49% of ours and consensus fullyear estimates. ROE stood at 10.9%, within management’s FY23 target of 10.5-11%.

• A first interim full cash dividend of 29 sen per share (1H22: 28 sen) was declared. This translates to a higher effective net cash dividend payout ratio of 75.9% (1H22: 67.6%)

• The higher net operating income was underpinned by stronger non-fundbased income (non-NII), which almost doubled to RM4,011.9mn from RM2,491.6mn in 1H22. The improvement was due to better contributions from Treasury and Markets (>100% YoY), which was lifted by higher forex profit, gains in investment and trading income, and a MTM gain on financial liabilities. QoQ, the non-NII driven by unrealised treasury and markets gain that more than doubled sequentially. Core fee income, however, declined by 2.1% YoY anchored by decreases in Brokerage Income and Fees on loans. Sequentially, the core fee income rose by 1.6%, thanks to better service charges and investment banking fees.

• 1H23 net fund-based income (NII) declined by some 4.4% YoY, underpinned by a further decline of the net interest margin (NIM) of 22 bps YoY. The compression was attributed to the steep increase in funding costs. Meanwhile, the group loans grew by 5.3%, driven by Malaysia (+3.9% YoY). Overseas, loans and advances in Singapore contracted by 1.7% YoY, while loans in Indonesia widened by 2.2%. Overall loans from International operations grew by 7.4% YoY.

• In Malaysia, loans in Consumer Financial Services increased by 5.9% YoY. The increase was anchored by the rise in mortgages (+7.3% YoY). Demand for other consumer loans, such as credit cards (+15.9% YoY) and auto loans (+9.2% YoY), remained healthy. Elsewhere, SME and Business Banking loans accelerated by 7.8% YoY due mostly to robust demand from the SME segment (+9.6% YoY), while Business Banking loans advanced by 6.2% YoY. Loans outstanding in Corporate Global Banking contracted by 2.8% YoY.

• Total group deposits rose by 2.8% YoY. Deposits in Malaysia expanded by 0.2% YoY, while deposits accumulated overseas jumped 7.4% YoY. Maybank’s loan-to-deposit (LD) ratio climbed to 92.3% (Dec 22: 91.6%). At RM254.5bn, group CASA deposits are down by 17.2% YoY. The CASA ratio slipped to 37.7% from 40.9% in FY22.

• Total overhead expenses rose by 15.1% YoY due to personnel costs (+15.5% YoY) (related to collective agreement adjustments) and Marketing expenses (+32.2% YoY) (due to one-off gift points redemption for credit cards). Admin & general and Establishment expenses were also higher by 13.1% and 13.0% YoY. The group’s cost-to-income (CTI) ratio broadened to 47.5% from 44.8% a year ago due to negative JAWs.

• YoY, the net impairment losses halved to RM867.4mn attributed to writebacks in financial investments and lower net loan provisioning on writeback for corporate borrowers and stable impairment volumes/balances YoY. The annualised net credit charge-off rate improved to 31 bps (1H22: 46 bps), better than management’s FY23 guidance of 40 - 50 bps.

• Loan loss coverage strengthened to 130.3%. Maybank’s GIL ratio improved to 1.47% as at end-June 2023 (1H22: 1.81%) due to write-offs. By geographical segment, the decrease was anchored by lower YoY GIL for Singapore (0.61%) and Indonesia (4.06%). Malaysia, however, reported an uptick in the GIL ratio to 1.34% from 1.28% in 2Q22.

• Maybank’s CET1 and total capital ratio stood at 15.2% and 18.5% as of June 2023. The liquidity coverage ratio (LCR) stood at 140.7%, and the Net Stable Funding Ratio (NSFR) was at 117.6% - comfortably above regulatory requirements.

Impact

• No change to our earnings estimates.

Outlook

• Going forward, Maybank will focus on growing revenues across consumer and business segments within its ASEAN franchise, especially in the CFS franchise business, Global Banking, Wealth Management and Sustainable Financing. However, management noted that loan momentum could continue decelerating in the remaining quarters due to slower economic growth and softer China reopening. Expectations are also for NIM to compress more severely by 25 bps in 2023 after revising the guidance from between 5 and 8 bps.

• On a positive note, earnings could be supported by potential asset quality recovery and ongoing efforts to enhance asset quality management, thus leading to a lower net credit charge-off (NCC) rate. With that, management also revised the NCC guidance to between 30-35 bps from 35-40 bps previously.

• Elsewhere, the group’s CTI ratio is expected to remain at c. 47.5% due to strategic investments to enhance IT capabilities, integrate ecosystems, drive regional cross-selling synergies as well as higher union-related Collective Agreement expenses. Taken together, Maybank maintained its guidance for an ROE of 10.5 to 11% in FY23.

Valuation

• We lowered the sector’s market risk premium assumption to 6.0% from 6.5% on the back of an improved domestic political climate. As such, we raised Maybank’s TP to RM9.50 from RM8.50. Our valuation is based on an implied PBV of c. 1.24x based on the Gordon Growth Model. Upgrade Maybank to HOLD.

Source: TA Research - 1 Sept 2023