Review

• Maybank’s 1QFY24 net profit rose by 9.8% YoY, supported by a 19.8% YoY increase in net operating income. Despite that, results came within expectations, representing 26% of our full-year estimates. ROE stood at 10.8%, within management’s FY24 target of 11%.

• The higher net operating income was underpinned by stronger noninterest income (non-NII), which accelerated to RM2.74bn from RM1.53bn a year ago. The improvement was due to better contributions from the Treasury and Markets (>100% YoY), which was lifted by higher realised gains on bond disposals, better FX sales and unrealised gains on financial assets at FVPTL. Core fee income also improved by 17.3% YoY, anchored by higher wealth, cards and advisory fees.

• 1QFY24 net fund-based income (NII) improved marginally to RM4.84bn vs RM4.80bn a year ago, underpinned by an 11.2% YoY increase in loan growth. By geography, loans were driven by Indonesia (+13.6% YoY), followed by Singapore (+12.2% YoY) and Malaysia (+8.2% YoY). However, the increase in NII was partly muted by a further contraction in the net interest margin (NIM), which narrowed by 19 bps YoY and 6 bps QoQ to 2.00%. Management noted that the compression was attributed to the steep increase in funding costs.

• In Malaysia, loans in Consumer Financial Services increased by 8.6% YoY. The increase was anchored by the rise in mortgages (+12.1% YoY). Demand for other consumer loans, such as credit cards (+14.5% YoY) and auto loans (+9.1% YoY), remained healthy. Elsewhere, SME and Business Banking loans accelerated by 10.3% YoY due mostly to robust demand from the SME segment (+36.1% YoY), while Business Banking loans continued to decline by 12.3% YoY. Loans outstanding in Corporate Global Banking turned around to grow by 7.4% YoY, compared to a contraction of 5.9% YoY in the previous quarter.

• Total group deposits rose by 8.9% YoY. Deposits in Malaysia rose by 6.2% YoY, while deposits accumulated overseas jumped 13.5% YoY. Maybank’s loan-to-deposit (LD) ratio rose slightly to 92.6% (Dec 23: 91.7%). At RM254.5bn, group CASA deposits have recovered and grown by 4.3% YoY. With that, the CASA ratio rose to 37.3% from 36.9% in FY23.

• 1QFY24 total overhead expenses rose by 19.8% YoY and 1.1% QoQ due to Personnel costs (+21.3% YoY, partly due to provisions for unionised staff), followed by Admin & general (+20.4% YoY, due to credit card related fees on higher billings and merchant volume), Marketing (+19.0% YoY) and Establishment expenses (+14.1% YoY due to higher IT expenses). YoY, the group’s cost-to-income (CTI) ratio remained steady at 48.3% but improved from 51.9% in 4QFY23 due to positive JAWs.

• YoY, total allowances on loans grew 85.8% YoY to RM544.3mn. Loan Expected Credit Losses rose by 29.9% YoY, attributed to the Malaysia SME and HP portfolios, along with lower writeback for Malaysia and Singapore corporate borrowers. The annualised net credit charge-off rate improved to 29 bps (1QFY23: 25 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 127.3%. Maybank’s GIL ratio improved to 1.32% as of end-March 2024 (March 2023: 1.50%) due to write-offs, recoveries and stronger growth in group loans. By geographical segment, the YoY decrease was anchored by lower GIL for Malaysia (1.25%) and Indonesia (3.66%). Singapore, however, reported an uptick in the GIL ratio to 0.68% (March 2023: 0.60%).

• Maybank’s CET1 and total capital ratio stood at 14.9% and 18.2% as of March 2024, respectively. The liquidity coverage ratio (LCR) stood at 127.2%, and the Net Stable Funding Ratio (NSFR) was at 118.4% - above regulatory requirements.

Impact

• No change to our earnings estimates.

Outlook

• Maybank is looking to focus on growing within the ASEAN franchise, targeting its portfolios, particularly in mortgage, RSME, and SME+ segments across universal markets. Global Banking is set to deepen account planning across segments, focusing on the mid-market segment and enhancing cash management penetration. Concurrently, Maybank is committed to diversifying revenue streams by expanding wealth management, especially in Islamic offerings, and broadening the bancassurance footprint. It is also aligning with sustainable financing solutions to bolster its position in the evolving financial landscape.

• 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 slight NIM compression of up to 5 bps for FY24. Elsewhere, Maybank will continue to invest strategically. Management expects to maintain a CTI ratio below 49%. In terms of asset quality management, recovery efforts will be prioritised to achieve a sustained lower net credit charge-off rate of 30 bps. Taken together, management is targeting to achieve an ROE of 11% for FY2024.

Valuation

• Rolling valuations forward to FY25, we adjusted Maybank’s TP to RM10.80 from RM9.90. Our valuation is based on an implied PBV of c. 1.31x based on the Gordon Growth Model. With that, we raised our recommendation from hold to BUY.

Source: TA Research - 27 May 2024