• Maintain BUY and MYR10.40 TP, 16% upside with c.6% FY22F yield. Malayan Banking’s 1Q22 results are within expectations, with lending tracking expectations but fee income weaker on volatile markets. Management is keeping its credit cost guidance, as it stays cautious on outlook and asset quality. Stay BUY, given the bank’s steady operations, strong capital and attractive dividend yield.

• 1Q22 results in line. Net profit of MYR2.04bn (-0.6% QoQ, -14.5% YoY) is at 25% and 24% of our and consensus FY22F earnings. Reported 1Q22 ROAE was 9.4% (FY21: 9.8%) – at the lower end of management’s 9.5-10% target. CET-1 stood at 14.9% (Dec 2021: 16.1%) after a second interim dividend payment for FY21. Against 4Q21, pretax profit rose 9% on higher net fee based income (+9% QoQ), lower opex (-0.7% QoQ) and a 11% QoQ drop in net impairment charges. The one-off Cukai Makmur raised the effective tax rate to 29.8% (4Q21: 22%), resulting in the 0.6% QoQ dip in net profit. Growth in net fee based income came mainly from the 85% QoQ rise in net insurance income and MYR566m (4Q21: MYR81m) in net gains from derivatives and financial liabilities. These offset the realised and unrealised losses in the securities investment portfolio. Net fund based income was flattish as lower interest income from securities mitigated the 2bps QoQ NIM uptick to 2.34% and 1.5% QoQ loan growth (Figure 1).

• Asset quality. Gross impaired loans (GILs) -0.9% QoQ mainly on write-offs and low new impaired loan formation. GIL ratio eased to 1.95% vs 1.99% in 4Q21. In Malaysia, loans under repayment assistance (LURA) fell to 16.8% of loans at end-April (Figure 4). Including new applications for the Financial Management and Resilience Programme (URUS) and Flood Relief Assistance Programmes, LURA ticked up to 17.1%. Group oil & gas loan and fixed income exposures stood at 2.98% with the GIL ratio at 24% (stable QoQ). Management assessed that provisions are adequate, with FY22F credit cost staying within the 40-50bps guidance – even if allowance top-up is required. Maybank has not reversed management overlays, estimated at MYR2.90bn.

• FY22 outlook. Management reiterated its FY22 financial targets. Although its Indonesia loan book contracted 2.2% YTD, we believe healthy growth in Malaysia and Singapore could see group loans growing 5% YoY. NIM is expected to be stable to 5bps higher, with policy rates forecast to rise another 25bps in 4Q22 in Malaysia and 75bps in Indonesia. CIR is to range 45-46%, given cost pressures and the impending renewal of the collective union agreement. Credit cost guidance is at 40-50bps (FY21: 51bps) despite a charge of only 32bps in 1Q22. ROE target is 9.5-10% (Figure 2).

• Earnings and TP. We make no changes to our FY22-24F net profit. Our MYR10.40 TP incorporates a 4% ESG premium, based on RHB’s in-house methodology. Our intrinsic value of MYR10.04 is based on a GGM-derived 1.4x P/BV vs the historical mean of 1.3x.

Source: RHB Research - 27 May 2022