• Still NEUTRAL and MYR11.30 TP, 7% upside and c.6% FY25F yield. Malayan Banking’s 3 Oct investor day showcased its two largest overseas operations (Singapore and Indonesia). Longer term, we think its plans to leverage off its ASEAN footprint and Islamic banking expertise to grow its global and shariah- compliant banking, and wealth businesses makes sense. Near term, though, the US Federal Reserve rate cut cycle and sizeable Singapore presence could pressure NIMs. With valuations approaching long-term mean levels and compression in dividend yields, the current valuation looks fair to us.

• Singapore (27% and 25% of group loans and PBT). Maybank is Singapore’s second-largest foreign bank and fifth largest overall. It is also the market leader in auto financing. A fairly sizeable presence, asset quality, and healthy capital ratios are positives, but a key negative is its deposit franchise. 1H24 NIM was 0.92% – well below incumbent NIMs of >2%. Near term, Maybank targets to improve its global banking (GB) CASA franchise by seeking a fair wallet share, given that it already has a good presence in the corporate loan syndication market. Longer term, Islamic banking, wealth management, trade and transition financing and regional corridors are areas that Maybank sees good opportunities to leverage off Singapore’s position as a trade and wealth hub, coupled with its own ASEAN presence and Islamic banking franchise.

• Indonesia (5% and <1% of group loans and PBT). Maybank is a Top 15 bank in Indonesia but ranked fifth in Islamic banking. It is also one of the leaders in auto loans. 1H24 PBT contributions to the group was negligible due to loan impairments for corporate accounts, which it said has been fully provided for. Going forward, Maybank’s strong Islamic banking position and Indonesia’s low Islamic banking penetration (c.7% vs Malaysia’s 42%) suggests a long growth runway for shariah-compliant banking and wealth management. It is also rebalancing its GB book to large private corporates and away from state- owned enterprises (SOEs), which should yield positive results in terms of better-quality credits underwritten, as well as non-II and CASA opportunities. On potential acquisitions to help scale up, Maybank said there was nothing on the table at the moment.

• Rate cycle negative for Singapore, potentially positive for Indonesia. Maybank guided for Singapore NIM sensitivity of 2bps for every 25bps rate cut or 2.5bps per 100bps rate cut at group level, by our estimates. In Indonesia, management observed that banks there have not adjusted rates following the recent policy rate cut – possibly to ensure sufficient liquidity going into 4Q24. That said, Maybank Indonesia was hopeful rate cuts can help ease funding cost pressures, which could help cushion the NIM pressure from Singapore.

• Forecasts and TP retained. Our MYR11.30 TP includes a 6% ESG premium.

Source: RHB Research - 7 Oct 2024