1QFY22 PATAMI of RM2.05b (-15%) is within expectations. This year’s earnings are anticipated to be dampened by prosperity tax while we believe diminishing NOII should ease in the second half. Management is confident that it will deliver according to its guidance. No dividend was declared during this quarter, also as expected. Maintain OUTPERFORM and GGM-derived PBV TP of RM11.05.

1QFY22 within expectations. 1QFY22 PATAMI of RM2.05b came in as expected, making up 24% each of both our/consensus full-year estimates. No dividend was declared as expected, as the group typically pays out biannually.

YoY, 1QFY22 total income declined to RM6.45b (-5%). NII grew 4% on the back of a larger loans portfolio (+5%) with moderately stable estimated NIMs (-2bps). CASA mix (44.5%, +1.5ppt) continued to expand on more attractive deposit products pre-OPR hike. On the flipside, NII slid by 28% mainly due to poorer insurance segment’s results (-52%, likely from normalisation of claims incidences) with some softness in trading performance. Cost-wise, CIR rose to 45.5% (+4.2ppt) in tandem with the higher NII. Meanwhile, credit cost saw a drastic improvement at 32bps (-32bps) in a less taxing climate for asset quality. That said, though PBT only declined by 4%, PATAMI dipped by 15% due to the incurrence of prosperity tax.

QoQ, 1QFY22 total income rose by 3%, where slightly flattish NII was made up by strong NOII (+14%) as insurance segment’s results were comparatively better while fee-based income diminished sequentially. Credit cost registered a +20bps difference but recall that 4QFY21 benefitted from pre-emptive bookings. All in, 1QFY22 PATAMI registered a slight decline (-1%).

Key briefing highlights. For the time being, management is confident that its FY22 guidance is intact. The group expects OPR to close at 2.25% by year end, netting a bps gain in annualised NIMs. Our in house expectation for OPR stands at 2.50-2.75%. It was noted that higher credit charges in the subsequent periods could be higher with the maturity of repayment assistances that could induce delinquency, but the proportion is expected to be unsubstantial. As of April 2022, only 2% of loans under relief (<1% group) missed payments. Further on asset quality, the group’s exposure to the oil & gas sector only makes up 3% of total loans portfolio which is already well provisioned by management. At present, we see the main shortfall for the group would be softening Indonesia numbers (-2% loans and -10% deposits, YoY) which appear to be more interest rate sensitive. Management aims to tackle this by targeting a higher mortgage market share.

Post results, our FY22E/FY23E earnings were tweaked by +1% on model updates.

Maintain OUTPERFORM and TP of RM11.05. Our TP is based on an unchanged GGM-derived FY23E PBV of 1.44x (1.5SD above mean). This is reflective of better sentiment with financial institutions in anticipation of a more hawkish stance on OPR. Post the 25bps rate hike in 11 May, we had revised MAYBANK’s earnings by 2% and this quantum is expected for further subsequent adjustments. We like the stock for its dividend prospects. Despite the group’s constant dividend guidance of 40-60% payout, it has consistently paid at c.80% which translates to yields of 7-8%.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower- than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) further slowdown in capital market activities, (v) adverse currency fluctuations, and (vi) changes in OPR. 

Source: Kenanga Research - 27 May 2022