Review

• Maybank’s 1HFY24 net profit rose by 9.0% YoY, supported by a 9.4% YoY increase in net operating income. Despite that, results came within expectations, representing 53% of our full-year estimates. Annualised ROE stood at 11.1%, within management’s FY24 target of 11%.

• A first interim, cash dividend of 29 sen per share (1HFY23: 29 sen) was declared. This translates to an effective net cash dividend payout ratio of 69.7% (FY23: 77.4%).

• The higher net operating income was underpinned by stronger contributions from Islamic Banking operations and non-interest income (non-NII), which accelerated to RM5.2bn from RM4.0bn a year ago. The improvement in non-NII was due to 1) improved core fees from higher wealth, loan-related and brokerage and IB advisory fees, 2) higher investment and trading income from realised gains on bond disposals, improved FX sales and unrealized gains on financial assets at FVTPL, and 3) stronger insurance performance.

• 1HFY24 net fund-based income (NII) improved to RM9.8bn vs RM9.6bn a year ago, underpinned by a 10.4% YoY increase in loan growth. By geography, loans were driven by Singapore (+12.5% YoY), followed by Indonesia (+12.1% YoY) and Malaysia (+10.6% YoY). However, the increase in NII was partly muted by a contraction in the net interest margin (NIM), which narrowed by 11 bps YTD. On a positive note, NIM stabilised sequentially, rising by 2 bps to 2.02% attributed to improved funding costs.

• In Malaysia, loans in Consumer Financial Services increased by 9.5% YoY. The increase was anchored by the rise in mortgages (+13.2% YoY). Demand for other consumer loans, such as credit cards (+14.0% YoY) and auto loans (+8.6% YoY), remained healthy. Elsewhere, SME and Business Banking loans accelerated by 11.2% YoY due mostly to robust demand from the SME segment (+34.5% YoY), while Business Banking loans continued to decline by 9.5% YoY. Loans outstanding in Corporate Global Banking grew at a healthier pace of 14.1% YoY, rebounding from a contraction of 5.9% YoY in 4QFY23.

• Total group deposits rose by 7.9% YoY. Deposits in Malaysia grew by 9.2% YoY, while deposits accumulated overseas climbed 6.0% YoY. Maybank’s loan-to-deposit (LD) ratio rose slightly to 94.5% (Dec 23: 91.7%). At RM270.8bn, group CASA deposits continued to recover, growing by 9.8% YoY. With that, the CASA ratio rose to 38.1% from 36.9% in FY23.

• 1HFY24 total overhead expenses rose by 12.0% YoY (-1.7% QoQ) due to Personnel costs (+11.2% YoY, partly due to provisions for collective agreements), followed by Admin & general (+14.7% YoY, due to credit card related fees on higher billings and merchant volume), Marketing (+16.4% YoY) and Establishment expenses (+10.4% YoY due to higher IT expenses). YoY, the group’s cost-to-income (CTI) ratio broadened to 48.6% from 47.5% in 1HFY23 due to negative JAWs.

• YoY, net impairment losses grew 6.5% YoY to RM924.1mn. However, the Loan Expected Credit Losses declined by 7.9% YoY, attributed to higher recoveries from large corporate borrowers, though the impact was muted by some uptick in ECL for SME & retail portfolios in Malaysia and several borrowers in Indonesia. The annualised net credit charge-off rate improved to 27 bps (1HFY23: 31 bps), in line with management’s FY24 guidance of keeping the net credit charge-off rate at less than 30 bps.

• Loan loss coverage softened to 128.7%. Maybank’s GIL ratio improved to 1.29% as of end-June 2024 (June 2023: 1.47%) due to write-offs, recoveries and stronger growth in group loans. By geographical segment, the YoY decrease was anchored by lower GIL for Malaysia (1.19%). Singapore and Indonesia, however, reported an uptick in the GIL ratio to 0.68% (June 2023: 0.61%) and 4.18% (June 2023: 4.06%), respectively.

• Maybank’s CET1 and total capital ratio stood at 14.7% and 18.0% as of March 2024, respectively. The liquidity coverage ratio (LCR) stood at 133.5%, and the Net Stable Funding Ratio (NSFR) was at 114.1% - above regulatory requirements.

Impact

• No change to our earnings estimates.

Outlook

• Management expects a stable economy across the region to drive loan growth across its home markets. Loan growth is expected to gather pace in Malaysia, Singapore and Indonesia. In FY24, management plans to maintain a robust liquidity position, optimise capital through RWA initiatives, and strategically defend CASA balances. Despite that, management is guiding for a slightly larger NIM compression of up to 10 bps (from 5 bps previously) for FY24. Management expects to maintain a CTI ratio below 49%. In terms of asset quality management, recovery efforts will be prioritised to achieve a sustained net credit charge-off rate of <30 bps. Taken together, management aims to achieve an ROE of 11% for FY2024.

Valuation

• We updated the beta and lowered our market risk premium from 6% to 5.5% for the banking sector on the back of the improving economic environment in Malaysia, the banking system’s healthy asset quality and capital ratios, stable interest rate environment and more positive investor sentiments. With that, we raise Maybank’s TP from RM11.12 to RM11.85. Our valuation is based on an implied PBV of c. 1.40x based on the Gordon Growth Model and a 3% ESG premium. Buy maintained on Maybank.

Source: TA Research - 29 Aug 2024