Investment Highlights

• We maintain BUY call on Malayan Banking (Maybank) with an  unchanged fair value (FV) of RM9.80/share, pegging the stock  to a P/BV of 1.3x based on FY23F ROE of 10.9%. A 3% premium  has been accorded to the valuation based on a 4-star ESG  rating. 

• We make no changes to our earnings estimate as underlying  earnings in 1Q23 were within expectation, accounting for  23.8% of our FY23F net profit and 24.3% of consensus  estimate. 

• After stripping out the impact of Cukai Makmur in 1Q22, core  earnings in 1Q23 grew by 2.1% YoY to RM2.3bil. In 1Q23,  stronger non-interest income (NOII) and lower provisions were  partially offset by a decline in net fund-based income from net  interest margin (NIM) compression and higher operating  expenses (opex). 1Q23 NOII rose by 12.4% YoY supported by  higher treasury & markets income. 1Q23 saw realised &  unrealised derivative gains of RM0.32bil, higher FX profits and gains in investment and trading income partially offset by  marked-to-market losses on financial liabilities.

• Opex grew by 11.8% YoY in 1Q23, driven by higher personnel  costs which included collective agreement (CA) adjustments.  Also increases were marketing expenses, establishment cost,  admin, and general expenses. This led to a higher CI ratio of  48.3% in 1Q23 vs. 43.7% in 1Q22. Excluding the CA  adjustments of RM15mil, the CI ratio would have been lower at  47.5%.

• The group’s overall loans moderated to 5.3% YoY in 1Q23 6%  YoY in 4Q22. Malaysian loans grew 5.1% YoY, slightly above  industry’s 5% YoY growth. Loans in Indonesia expanded by  7.2% YoY while the loan book in Singapore contracted by 0.4%  YoY. 

• Group deposit growth eased further to 3% in 1Q23 compared  to 3.5% YoY in 4Q22. FDs and other deposits recorded positive  growth while CASA balances fell, led by the decline in  Singapore followed by Malaysia. The group’s CASA ratio  slipped to 39.1% in 1Q23 vs. 40.9% in 4Q22. Nevertheless, the  ratio was still above the pre-pandemic level of 35.5% in Dec 19.

• 1Q23 NIM contracted by 15bps YoY to 2.19% due to higher  funding costs in Malaysia. We expect pressure on funding cost  to abate in the sequential quarters due to the group’s plans to  reprice deposit rates lower as well as softer FD campaign rates  offered recently in the market. 

• Provisions for loan losses were lower by 18.7% YoY. Net credit  cost of 24bps in 1Q23 was within management’s guidance of  35–40bps for FY23.

• No Dividends Were Declared in 1Q23.  

Source: AmInvest Research - 25 May 2023