KUALA LUMPUR: CIMB Equities Research is retaining its Add recommendation for Malayan Banking Bhd
(Maybank) on its expectations of a recovery in earnings per share growth in FY17F.
The research house had on Friday also based its outlook on the strong expansion in the earnings contribution from Indonesia, better-than-expected 4QFY16 results, and benefits from the regionalisation of its operations.
However, the downside risks to its call are a spike-up in credit costs and wider-than-expected margin erosion.
“Maybank’s reported FY16 net profit was 4.4% above our forecast and 7.5% above Bloomberg consensus estimates. The outperformance mainly came from the RM210mil one-off gain from the sale of shares in Mastercard and lower tax rate.
“However, the core FY16 net profit was within expectations at 101% of our forecast. FY16 total net DPS of 52 sen was also in line with our projected 52 sen. We retain our FY17-18F EPS forecasts and dividend discount model-based target price of RM9.20,” it said.
CIMB Research said that in FY16, Maybank saw a 68.3% spike in loan loss provisioning partly due to its preemptive measures to restructure loans.
But FY16 net profit fell by only 1.4% as it was cushioned by total one-off gains of RM625mil on the sale of shares (RM415mil in Visa and RM210mil in Mastercard).
The positive result was wider “jaws”, as tight cost control kept the rise in FY16 overheads to only 2.8%, below the 4.8% increase in operating revenue.
Net interest margin only eased by 4bp on-year to 2.27% in FY16, mainly due to the rate cut.
CIMB Research pointed out Maybank registered strong loan growth of 5.2% on-quarter in 4Q16, enabling the turnaround in loan momentum from a 0.7% on-year contraction at end-Sep 16 to an expansion of 5.7% on-year at end-Dec 16.
It saw better loan growth in all major markets at end-Dec 16, with a rise of 6.3% on-year in Malaysia (vs. +3.1% on-year at end-Sep 16), 6.7% on-year in Singapore (vs. -3.7% on-year) and 15.3% on-year in Indonesia (vs. +9.8%).
There was an across-the-board rebound in loan growth for all segments in 4Q16, including property and auto loans.
Maybank group’s gross impaired loan growth increased slightly from 2.22% at end-Sep 16 to 2.28% at end-Dec 16, while loan loss coverage fell from 74.8% to 72% over the same period.
Oil and gas exposure
Lending to the oil and gas sector (funded and non-funded) accounted for 4.35% of Maybank’s total loans at end-Dec 16, with the following geographical breakdown – 2.8% in Malaysia, 1.3% in Singapore, 0.2% in Indonesia and 0.1% in other countries.
CIMB Research pointed out that excluding the non-funded exposure, Maybank’s overall oil and gas exposure was 3.9% at end-Dec 16.
“The following is a breakdown of Maybank’s oil and gas exposure at end-Dec 16 by market segment – 39% for upstream, 36% for supporting upstream, 5% for downstream and 20% for downstream support.
“In terms of the status of these accounts, 49% were performing, 42% were on the watch list, 8% were classified as GIL (down from 12% in Jun 16) and 1% were classified as special mention accounts.
“The exposure to oil and gas sector have been fairly stable in the past two quarters. Furthermore, the 4.4% exposure to the oil and gas sector is relatively small.
“We believe that the bank has reviewed most of the oil and gas accounts and provided sufficient provisioning for those that are viewed to be of high risk of default. As such, we think that additional provisioning from oil and gas loans in 2017 would not be significant,” it said.
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