• Maintain NEUTRAL and MYR10.60 TP, 6% upside. Malayan Banking’s 1Q24 results are in line, with reported ROE of 10.8% tracking the 11% guidance for 2024. While 1Q24 headline PATMI growth looks strong, Maybank thinks loans growth and non-II will moderate ahead – as such, it left its 2024 targets and guidance unchanged. In our view, the yield compression theme has largely been played out. The stock is up 12% YTD, and this has compressed its FY24F dividend yield to 6.3% currently from 7.3% at the start of the year.

• 1Q24 results met expectations, with net profit of MYR2.5bn (+4% QoQ, +10% YoY) at c.25% of our and consensus FY24F PATMI. 1Q24 PATMI growth was underpinned by operating income (+9% QoQ; +20% YoY). Non-II was robust (+79% YoY; +30% QoQ) thanks to treasury and markets income (+124% YoY; +69% QoQ) on realised and unrealised gains, as well as FX sales. Meanwhile, loans growth was healthy (+11% YoY; +3% QoQ) but NII was flattish due to NIM squeeze. Despite the strong operating income performance, this was partly offset by a broad-base rise in opex (+20% YoY; +1% QoQ) and higher non-loan impairments. 1Q24 credit cost rose 5bps YoY to 29bps (4Q23: 30bps) mainly due to Stage 1 expected credit loss or ECL writebacks in 1Q23.

• NIM fell 6bps QoQ (YoY: -19bps) to 2.0% – mainly due to Singapore (SG) whereas Malaysia (MY) and Indonesia (IND) NIM was down 1-2bps QoQ. It retained its 2024 NIM guidance of up to 5bps squeeze (2023: 2.12%), which implies better NIMs ahead. This includes continued efforts to manage down domestic deposit funding cost (eg growing CASA and retail deposits) and slowing down loans growth in SG if funding is too costly.

• Gross loans expanded 2.7% QoQ (+11.2% YoY), with overseas markets up 4.3% QoQ (+16.5% YoY) while domestic loans rose 1.7% QoQ (+8.2% YoY), thanks to retail. Annualised growth was 11% (domestic: +6.6%; SG: 14.7%; IND: 24.3%). While this is ahead of Maybank’s expected 6-7% growth, management did not think the pace in 1Q would be sustained on expectations that the corporate segment could moderate ahead and efforts to protect NIM (as above). Meanwhile, total deposits rose 1.7% QoQ (+8.9% YoY). Annualised growth was 7%, with CASA up 12.5% and fixed deposit growing 8.7%. As such, group CASA ratio ticked up QoQ to 37.3% from 36.9% in Dec 2023 (Mar 2023: 39.1%) while LDR inched up further to 91.3% (2023: 90.5%).

• Asset quality stable. Absolute GIL was stable QoQ (-3% YoY) but with the continued loan growth, the GIL ratio eased lower 2bps QoQ to 1.32% (1Q23: 1.5%). Maybank saw an uptick in the GIL ratios for its domestic RSME and auto portfolios, which it attributed to inflation and cost pressures, plus RSME names that required further repayment assistance, but this was compensated by improvement in SG GIL. LLC improved to 127% (4Q23: 125%). Overlays remains at MYR1.7bn with 67% allocated for its retail and RSME portfolios.

• Forecasts and TP retained. Our MYR10.60 TP includes a 6% ESG premium.

Source: RHB Research - 27 May 2024