Review

• Maybank’s 9M23 net profit rose by 21.0% YoY, supported by a 3.6% YoY increase in total income and lower impairment and allowances. Results came within expectations, representing 74% of our full-year estimates. ROE stood at 10.7%, within management’s FY23 target of 10.5-11%.

• The higher net operating income was underpinned by stronger non-fundbased income (non-NII), which accelerated to RM5,953mn from RM4,321.6mn in 9M22. The improvement was due to better contributions from Treasury and Markets (+55.3% YoY), which was lifted by higher forex profit and investment and trading income gains. Nonetheless, the non-NII declined by 21.9% QoQ due to reduced treasury and markets from higher net unrealised derivatives losses. On a positive note, core fee income improved by 2.8% YoY and 13.7% QoQ, anchored by increases in higher service charges, commission and underwriting fees. The sequential improvement was also due to better brokerage income and loan fees.

• 9M23 net fund-based income (NII) declined by some 6.0% YoY, underpinned by a further contraction of the net interest margin (NIM) of 5 bps QoQ (9M23: 25 bps YoY). Management noted that the compression was attributed to the steep increase in funding costs across home markets. Meanwhile, the group loans grew by 5.1%, driven by Malaysia (+3.7% YoY). Overseas, loans and advances in Singapore grew by 3.0% YoY, while loans in Indonesia declined by 0.3%. Overall loans from International operations increased by 7.3% YoY.

• In Malaysia, loans in Consumer Financial Services increased by 6.2% YoY. The increase was anchored by the rise in mortgages (+8.9% YoY). Demand for other consumer loans, such as credit cards (+17.1% YoY) and auto loans (+8.8% YoY), remained healthy. Elsewhere, SME and Business Banking loans accelerated by 7.6% YoY due mostly to robust demand from the SME segment (+39.5% YoY), while Business Banking loans declined by 20.5% YoY. Loans outstanding in Corporate Global Banking contracted by a more resounding 4.6% YoY.

• Total group deposits rose by 3.5% YoY. Deposits in Malaysia fell by 4.9% YoY, while deposits accumulated overseas jumped 13.8% YoY. Maybank’s loan-to-deposit (LD) ratio climbed to 93.0% (Dec 22: 91.6%). At RM255.2bn, group CASA deposits are down by 8.9% YoY. The CASA ratio slipped to 38.6% from 40.9% in FY22.

• 9M23 total overhead expenses rose by 10.6% YoY due to Personnel costs (+10.9% YoY, partly due to provisions for the collective agreement), Admin & general (+12.6% YoY, due to credit card related fees on higher billings and merchant volume) and Establishment expenses (+10.0% YoY due to higher depreciation of ROU asset and IT expenses). The group’s cost-to-income (CTI) ratio broadened to 47.9% from 44.9% a year ago due to negative JAWs.

• YoY, the net impairment losses halved to RM1,209.5mn attributed to writeback for corporate borrowers, recoveries and stable impairment volumes/balances YoY. The annualised net credit charge-off rate improved to 31 bps (9M22: 45 bps), in line with management’s revised FY23 guidance of 30 - 35 bps.

• Loan loss coverage strengthened to 127.1%. Maybank’s GIL ratio improved to 1.43% as of end-September 2023 (September 2022: 1.70%) due to write-offs and recoveries. By geographical segment, the YoY decrease was anchored by lower GIL for Malaysia (1.30%). Singapore and Indonesia, however, reported an uptick in the GIL ratio to 0.70% (September 2022: 0.64%) and 4.45% (September 2022: 4.10%) due to the formation of new impaired loans in the business banking and corporate banking portfolios, respectively.

• Maybank’s CET1 and total capital ratio stood at 15.41% and 18.77% as of September 2023, respectively. The liquidity coverage ratio (LCR) stood at 137.4%, and the Net Stable Funding Ratio (NSFR) was at 116.8% - 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. Annualised 9M NIM are now in line with expectations of a 25 bps compression in FY23 due to funding pressure after revising the guidance from between 5 and 8 bps earlier.

• 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. However, management has intensified its focus on monitoring the health of residual loans under repayment assistance programmes across key markets. Nevertheless, Maybank maintains the NCC guidance at between 30 and 35 bps (which was revised from 35 to 40 bps previously).

• Elsewhere, the group’s CTI ratio is now expected to end the FY slightly above the guidance of 47.5% due to the higher union-related collective agreement expenses. Other ongoing strategic investments include enhancing IT capabilities, integrating ecosystems and driving regional cross-selling synergies. Taken together, Maybank maintained its guidance for an ROE of 10.5 to 11% in FY23.

Valuation

• We maintain Maybank’s TP at RM9.50. Our valuation is based on an implied PBV of c. 1.24x based on the Gordon Growth Model. However, we downgrade Maybank to HOLD from buy as the risk-reward potential has narrowed due to the recent increase in the share price.

Source: TA Research - 23 Nov 2023