Malayan Banking - Can Non-II and Dividends Surprise Meaningfully?

Date: 
2024-02-20
Firm: 
RHB-OSK
Stock: 
Price Target: 
9.80
Price Call: 
HOLD
Last Price: 
9.60
Upside/Downside: 
+0.20 (2.08%)
  • Maintain NEUTRAL and MYR9.80 TP, 4% upside with c.7% FY24F yield. Malayan Banking is slated to report its 4Q23 results on 28 Feb. Our FY23F net profit of MYR9.3bn, in line with the consensus estimate, implies 4Q23 net profit could be 2% softer QoQ but up 6% YoY. We think non-II could be volatile due to market-related income but, generally, we are not expecting any major surprises. We maintain our stock rating, given the limited potential upside although its 6-7% dividend yields should appeal to yield seekers.
  • NII likely to be stable QoQ... We expect 4Q23 NII to be relatively stable sequentially, with potential NIM pressure from higher funding cost cushioned by loan growth. 3Q23 loans grew 2% QoQ and 5% YoY, which was broad-based across both domestic and overseas markets, and Maybank had been optimistic that this trend can be sustained in 4Q23. That said, 9M23 NIM of 2.14% was already down 25bps vs FY22’s 2.39% (3Q23 NIM: 2.09%). Hence, barring a sequential expansion in NIM, Maybank’s full-year NIM may undershoot its guidance although the overall impact is unlikely to be too material. On a YoY basis, NII is expected to be lower due to a NIM squeeze.
  • … leaving non-II as the key driver of the operating income trend. We believe fee income could stay robust on healthy card- and loan-related fees. The overall non-II trend, however, would be driven by the non-fee component, ie treasury & markets, and, to a lesser extent, the performance of its insurance arm. The drop in Malaysian government bond yields QoQ could offer opportunities for it to realise profits and help lift overall non-II QoQ and YoY.
  • Opex and credit costs may rise sequentially. The potential improvement in operating income, however, is expected to be partly offset by higher opex and loan impairments. Past trends suggest a seasonal pick-up in opex during the fourth quarter while, for loan impairments, a “low” base effect in 3Q23 (due to writebacks from certain corporate accounts and ECL model changes) could result in a rise in impairments. Bank results so far in Indonesia and Singapore, as well as the Malaysian banking statistics, indicate that there should be no major asset quality issues during the quarter.
  • Dividends. We expect a 4Q DPS of 31 sen to be declared, which would bring FY23 DPS to 60 sen – in line with the Street estimate (FY22: 58 sen). This is based on a payout ratio of 78% and, given its payout ratio of >80% in recent years, we would not be surprised if it declares a higher-than-expected DPS.
  • What to watch out for? Apart from its 2024 outlook and guidance, we would watch out for asset quality updates on the repayment assistance cohort for the retail SME business. Maybank had been watchful over this segment and earmarked 58% of its MYR1.7bn overlays for it. We would also be keen to see if there are any updates on capital management. Its CET-1 ratio rose to 15.4% in Sep 2023 from 14.8% in Dec 2022, on capital build and risk-weighted assets optimisation initiatives. Lastly, updates on its M25+ corporate strategy, specificially on opex and ROE trajectories, would be helpful.

Source: RHB Research - 20 Feb 2024

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