Maybank seen cautious about 2H outlook

TheEdge Tue, Sep 03, 2019 10:25am - 4 years View Original


Malayan Banking Bhd
(Aug 30, RM8.69)
Maintain hold with a higher target price (TP) of RM8.95:
Malayan Banking Bhd’s (Maybank) net profit for the cumulative six months of financial year 2019 (6MFY19) dipped 2.1% year-on-year (y-o-y) to RM3.75 billion. For the second quarter (2QFY19), its net profit improved 7.3% quarter-on-quarter (q-o-q). Its first-half (1HFY19) net profit was broadly within our estimates, though below street’s by 9%.

The key positive driver in 2QFY19 was non-interest income, on a more robust trading or investment income and lower impairment provisions. Nonetheless, its 6MFY19 operating income was flat or +1% y-o-y, while impairments saw a marginal increase of 2.5% y-o-y. The management has revised downward its return on equity (ROE) target to 10% to 10.5% from 11%, while raising its net credit cost guidance to slightly above 40 basis points (bps).

We maintained our “hold” call with a slightly higher TP of RM8.95 at 1.26 times 2020 price-to-book value (P/BV) target from RM8.75. An interim dividend per share (DPS) of 25 sen in cash was proposed, while the final dividend is still subject to regulatory approval.

Maybank’s 6MFY19 net profit of RM3,750.2 million was 2.1% lower y-o-y as the group saw a flat operating income — its fund-based income was +1% y-o-y, and non-interest income up 1% y-o-y. Its 1HFY19 impairment allowances rose a marginal 2.5% y-o-y, equivalent to a credit cost of 38bps versus 44bps in 6MFY18. As at 2QFY19, its loans grew at a decent 4.6% y-o-y and 1.7% q-o-q. Its 6MFY19 net interest margin (NIM), down nine bps y-o-y to 2.24%, is expected to normalise in 2HFY19.

Maybank has proposed a 25 sen cash-only interim DPS for 2QFY19. Nonetheless, the final dividend’s composition is still subject to the management’s decision and regulatory approval. Arguably, its robust common equity tier-1 ratio of 14.2% after dividend supports the idea of a more active capital management, potentially rerating the stock.

With an all-cash dividend payout, the dilutive impact on future earnings per share (EPS) will be minimised, while the ROE may be enhanced. For now, our assumptions are unchanged, with a loan growth of 3.4%, net credit cost of 47bps, cost-income ratio of 45.4% and NIM of 2.25% in 2019 estimate, but we made some minor adjustments on the EPS for 2019 to 2021 by 0.7% to 2.4% due to share-base changes.

The management has turned more cautious about the outlook for 2HFY19 and revised downward its ROE target to 10% to 10.5% from 11%, while raising its net credit cost guidance to slightly above 40bps. We also observed an uptick in Maybank’s gross impaired loans, from 2.48% in 1QFY19 to 2.64% in 2QFY19. However, there are government stimulus measures and spending in the domestic economy to sustain ongoing developments while liquidity conditions remain accommodative.

We maintained our “hold” rating and raised our TP to RM8.95, from RM8.75, based on 2020E target P/BV of 1.26 times from 1.24 times, with a cost of equity at 9.13% and 2020E ROE of 10.4%. Downside and upside risks are a rise or a decrease in credit cost and a weaker or a stronger loan growth. — Affin Hwang Capital, Aug 30

The content is a snapshot from Publisher. Refer to the original content for accurate info. Contact us for any changes.






Related Stocks

AFFIN 2.460
DPS 0.490
MAYBANK 9.650

Comments

Login to comment.