No 3Q surprises for Maybank

by **Cals** Mon 25 Nov 2013, 14:10

Business & Markets 2013

Written by Alliance IB Research

Monday, 25 November 2013 11:00

Malayan Banking Bhd
(Nov 22, RM9.59)
Maintain buy at RM9.55 with a target price of RM11.70: Maybank’s results for the nine months ended Sept 30 of 2013 financial year (9MFY13) met our as well as consensus’ expectations. The group’s net earnings rose by 12.5% to RM4,820.3 million, accounting for 77% of house and consensus’ full-year estimates.

The higher profit was attributable to: (i) robust top line growth, mainly driven by 21% increase in Islamic banking income coupled with 14.4% rise in non-interest income boosted by strong foreign gains; and (ii) continued cost discipline.

Annualised loan growth for 9MFY13 of 9.3% was lower than the group’s full-year loan growth target of 12%, but within our forecast of 9.4%. Domestic loans grew by an annualised rate of 8.7%, below the industry annualised loan growth of 10%. Although we expect the drawdown of Economic Transformation Programme-related business loans to accelerate post Budget 2014 announcement, we believe that it is rather too stretched for the group to meet its full-year guidance of 12%. We are maintaining our 9.4% gross loan growth target.

The group’s deposits grew by an annualised rate of 11.8% in 9MFY13, driven by strong deposit growth in all its major operations, that is in Malaysia: +11.1%, Singapore: +15.9% and Indonesia: +16.4%. In view of the stronger deposit growth relative to its loans, Maybank’s loan-to-deposit ratio (LDR) declined from 89.6% in FY12 to 88.2% in Sept 13, which is within management’s LDR comfort level of about 90%.

Net interest margin (NIM), post Malaysian Financial Reporting Standards (MRFS) 10 adjustments, dropped three basis points (bps) quarter-on-quarter (q-o-q) and and 10bps year-on-year (y-o-y) to 2.39% in the third quarter (3Q) of FY13. Management maintains its guidance of 10bps NIM contraction in 2013, driven by: (i) asset replacement cycle; (ii) competitive product pricing; and (iii) potential uptick in cost of funding.

The group’s annualised credit charge-off rate was lower by 21bps q-o-q to 33bps in 3QFY13 compared with 53bps recorded in 2QFY13, mainly due to higher individual allowance incurred in the previous quarter, which we believe was to provide for its exposure to Malaysian AE Models Holdings Bhd.

This brings its annualised 9M credit charge to 32.3bps. Barring unforeseen circumstances, management expects its credit charge-off rate to remain low in 4Q. We are maintaining our full-year credit charge at 30bps.

Loan loss coverage was lower at 104.7% in 3QFY13, compared with 105.6% in 4QFY12. Cost-to-income ratio declined from 50.3% in 9MFY12 to 48.5% in 9MFY13, implying that the ongoing initiatives to contain its cost increase are bearing fruits.

Capital adequacy ratios remain healthy with total capital, Tier-1 and core Tier-1 (CET1) ratios at 15.2%, 12.6% and 10.8% respectively.

Management reiterated that it has very insignificant exposure to Blumont Group Ltd, LionGold Corp Ltd and Asiasons Capital Ltd, listed on Singapore Exchange Ltd.

We are keeping our earnings estimates unchanged. We retain our target price of RM11.70 for Maybank. Our target price implies a 2.1 times FY14 price-to-book and 14.7% return on equity based on our Gordon growth valuation model. Maintain “buy”. — Alliance IB Research, Nov 22

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This article first appeared in The Edge Financial Daily, on November 25, 2013.