Kenanga Research expects Maybank’s operations in Malaysia and Indonesia to continue to ride on a better economic trajectory in the near term.
PETALING JAYA: Malayan Banking Bhd
(Maybank) is likely to post a stronger fourth quarter this year (4Q22), on the back of sustained expansion in net interest margins and recovery in non-interest income.
Malaysia’s largest banking group posted a net profit of RM2.17bil for 3Q22 ended Sept 30 and a cumulative net profit of RM6.1bil for the nine months of the year.
CGS-CIMB Research stated that despite the much higher effective tax rate of 32.4% in 3Q22 (versus 23.4% in 3Q21), mainly due to the Prosperity Tax, Maybank’s 3Q22 earnings jumped 28.5% year-on-year (y-o-y).
“This was mainly driven by a 14% y-o-y increase in net interest income (benefiting from overnight policy rate or OPR hikes); 45.8% y-o-y surge in non-interest income (better investment income); and 25.4% y-o-y plunge in loan loss provisioning,” it stated in a research note.
The research house added that Maybank’s 3Q22 net profit advanced by 17.4% quarter-on-quarter (q-o-q), driven by a 25.9% q-o-q jump in non-interest income and 27% q-o-q drop in loan loss provisioning.
“We project a net profit of RM2.19bil for Maybank in 4Q22.
This would translate to a y-o-y net profit growth of 6.5%, supported by continuous expansion in net interest margin and recovery in non-interest income.
“We also deem the nine-month net profit within market expectations at 72% of Bloomberg consensus estimates,” CGS-CIMB Research added.
Maybank did not declare an interim dividend for 3Q22 as it typically announces bi-annual payments.
Kenanga Research, meanwhile, stated that Maybank saw comparatively favourable adjustments to its insurance contract liabilities.
Its cost-to-income did experience some pressure on inflation adjustments to staff cost and revenue-related expenses, but was within the guided range.
“In the remaining 4Q22, the group anticipates competition for deposits to pick up with anecdotal evidence indicating long-term products are now yielding more than 4% returns.
“Although current account savings accounts or CASA ratios appear to be softening (42.1%, a drop of 2.4 percentage points), the group flags that absolute levels are stable, indicating that overall appetite for liquidity is still present,” Kenanga Research stated.
Kenanga Research said Maybank’s operations in Malaysia and Indonesia will continue to ride on a better economic trajectory in the near term.
It added that the bank’s Singapore operations will be less participative amidst more aggressive competition for deposits in the island republic, which may hamper its near-term profits.
CGS-CIMB Research has an “add” call on Maybank with a target price (TP) of RM10.30 a share, while Kenanga Research has an “outperform” call with a TP of RM10.40 a share.
Maybank is also Kenanga’s top pick for dividend yield sustainability for the 4Q period.
Hong Leong Investment Bank (HLIB) Research, meanwhile, has downgraded its call on Maybank to a “hold” from “buy” with a lower TP of RM8.90 (from RM9.70) following the cut in earnings expectations.
HLIB Research is not so bullish on the stock anymore, given the less-than-favourable earnings growth profile and believes sector tailwinds are dissipating and investment fatigue is building up towards the banking sector, hence, limiting price performance.
Its TP for Maybank was based on 1.15-times financial year 2023 price-to-book value.
Risks to the research house’s call on Maybank include a wider-than-expected increase in gross impaired loan ratio in financial year 2022 and a slowdown in loan growth.
Other risk factors include a strong pick-up in deposit competition in the banking industry, which could increase Maybank’s cost of funds and dilute the positive impact from the OPR hikes throughout the year.
