MAYBANK’s 1QFY24 net earnings (+10% YoY) met expectations with the group showing stellar loans growth despite its market leading share, albeit with an expectation to moderate. Challenges on funding costs persist but the group believes it is slated to see some improvement in subsequent periods. We keep our forecasts relatively unchanged, maintain OUTPERFORM and GGM-derived PBV TP of RM11.00.

Within expectations. MAYBANK’s 1QFY24 net earnings of RM2.49b came in at 26% of our full-year forecast and 25% of consensus full-year estimates. No dividend was declared as the group typically announces biannual payments.

YoY, 1QFY24 total income rose by 20%. This came from: (i) net interest income (+5%) enjoying strong loans growth (+11%) while being offset by continued softness in NIMs (2.13%, -9 bps), and (ii) non- interest income surging by 79% on the back of more favourable fixed income trading. All in, net profit only gained 10% as operating expenses also expanded by 20% from higher personnel charges and credit cost rising slightly to 29 bps (+5 bps).

QoQ, net interest income was flattish as 3% loans growth was evened out by a continued drag in NIM (-5 bps) as cost of funds remained tight. Still, the same stronger fixed income trading performance (+34%) uplifted total income which mostly translated to the 4% gain in net profit.

Briefing highlights. MAYBANK appeared to have exceeded certain targets early on but the group intends to keep steady with its guidance.

1. The 11% loans growth reported was supported by all home markets with Indonesia reflecting the highest percentile gain. This came mostly from better mortgage business in addition to the onboarding of several lumpy corporate accounts. MAYBANK kept its initial loans growth guidance of 6%-7% for prudence as the latter may not be sustainable in subsequent quarters.

2. A targeted NIM compression of less than 5% remains as the group believes it has secured a good handle in optimising its capital levels. Pressures appeared to have mostly come from Singapore with key market Malaysia seemingly only reported a 1 bps QoQ decline thanks to conscious cuts to fixed deposit products. Its higher CASA portfolio may also lag in regards to translating to funding cost gains.

3. Credit cost guidance of <30 bps remains intact as the group has not seen any notable cause to load on provisions. That said, the group had not written back on its outstanding RM1.7b overlay with a 67% allocation to retail and SME accounts, which we believe are generally more susceptible to downward shifts in macro conditions.

4. Although operating costs appear to show some strain, it could be attributed by union wage hikes that commenced in mid-CY23 with this being the new base of operating expenses. As top line performance should also remain undeterred, the group kept its cost- income target of <49% for FY24.

Forecasts. Relatively unchanged post-results updates.

Maintain OUTPERFORM and TP at RM11.00, based on an unchanged GGM-derived FY25F PBV of 1.34x (COE: 9.9%, TG: 3.5%, ROE: 12.0%). MAYBANK is expected to demonstrate operational resilience whilst sustaining its position as the leading bank in terms of market share. We believe in MAYBANK’s ability to provide the most sustainable returns via its consistent market share albeit now with more moderate dividend yields (c.6%) as the group relaxes on its share dividends.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi) changes to OPR.

Source: Kenanga Research - 27 May 2024