• Maybank’s 9MFY23 net profit (NP) was within expectations, accounting for 72% of our full-year forecast and 75% of Bloomberg consensus’ estimate.

• We project a 13.1% qoq growth in 4Q23 NP, on the back of stronger contributions from insurance business and stable credit costs.

• Reiterate Add, premised on potential write-back of management overlay and capital management initiatives to enhance dividend yield and ROE.

9MFY23 NP Within Expectations

Malayan Banking’s (Maybank) 9MFY23 NP was within expectations, accounting for 72% of our full-year forecast and 75% of Bloomberg consensus’ estimate. 9MFY23 net profit grew by 21% yoy, spearheaded by: 1) a 33.3% yoy jump in non-interest income, 2) a 27.6% yoy drop in loan loss provisioning, and 3) the non-recurrence of Cukai Makmur taxation. All these more than offset the 6.8% yoy drop in net interest income (dented by a contraction in net interest margin, or NIM).

Strong NP Growth in 3Q23 Despite NIM Contraction

The rise in cost of fund (arising from deposit competition) compressed 3Q23 NIM by 33bp yoy and 5bp qoq. This caused its 3Q23 net interest income to dwindle by 8.6% yoy. Notwithstanding the narrower NIM, Maybank’s 3Q23 net profit grew by a solid 12.3% yoy, aided by: 1) a 26.6% yoy plunge in loan loss provisioning, and 2) the non-recurrence of Cukai Makmur taxation.

Projecting a 13.1% Qoq Growth in 4Q23 Net Profit

We are projecting a net profit of RM2.67bn for Maybank in 4Q23, representing a growth of 13.1% qoq (+23% yoy). We expect this to be achieved on the back of better contributions from its insurance business (compared to negative contributions in 3Q23 and 4Q22), stable credit costs, flattish or a marginal increase in net interest income, and low single-digit rise in overheads (the above are all qoq trends).

Guidance by Maybank for FY23F

During the conference call on 22 Nov 23, Maybank guid ed for the following for FY23F: 1) a c.25bp contraction in NIM, 2) a net credit charge-off rate of 30-35bp, and 3) ROE of 10.5- 11%.

Reiterate Add on Maybank

We reiterate our Add call on Maybank premised on the potential re-rating catalysts from the write-back of its management overlay and capital management initiatives, which could lead to an increase in dividend payout ratio and ROE. Potential downside risks would be a deterioration in loan growth and asset quality. We retain our FY23-25F EPS forecasts but raise our DDM-based target price (TP) from RM10.30 to RM10.60 (cost of equity: 10.1%; terminal growth rate: 4%) as we roll over our TP to end-CY24F.

Source: CGS-CIMB Research - 22 Nov 2023