Kenanga Research said it expected Maybank to demonstrate resilience while sustaining its position as the leading bank in Malaysia in terms of market share. — Bloomberg
PETALING JAYA: Malayan Banking Bhd
(Maybank) is on track for a strong finish in 2023, following its robust performance for the first nine months of 2023 (9M23).
This will be supported by yet another robust performance anticipated for the fourth quarter (4Q) of the year.
According to CGS-CIMB Research, the largest lender in Malaysia will likely post net profit growth of 23% year-on-year (y-o-y), or 13.1% quarter-on-quarter (q-o-q), to RM2.67bil in 4Q23.
“We expect this to be achieved on the back of better contributions from its insurance business, compared with negative contributions in 3Q23 and 4Q22, stable credit costs, flattish or a marginal increase in net interest income, and low single-digit rise in overheads,” CGS-CIMB Research wrote in a report. The research house raised its target price (TP) for Maybank to RM10.60 from RM10.30 previously. It reiterated its “add” call on the counter.
This was premised on potential re-rating catalysts from the write-back of Maybank’s management overlay and capital management initiatives, which could lead to an increase in dividend payout ratio and return on equity.
CGS-CIMB Research noted Maybank had maintained its management overlay, the pre-emptive provision provided for credit risks, mainly from Covid-19, at RM1.7bil as of end-September 2023, which was unchanged since last year. A high percentage of 58% of the total management overlay was allocated for its retail and retail small and medium enterprises portfolio due to potential emerging credit risks.
“We see the possibility of a partial write-back of the management overlay. We estimate that every 10% write-back in management overlay would enhance our projected 2023-2024 net profits for Maybank by 1.2%-1.3%,” CGS-CIMB Research said.
Maybank’s 3Q23 net profit grew 12.3% y-o-y to RM2.36bil, as revenue surged 22.9% y-o-y to RM16bil. Its 9M23 net profit rose 21% y-o-y to RM6.96bil, as revenue rose 37.7% y-o-y to RM47.3bil.
Kenanga Research, which kept its “outperform” call on Maybank with an unchanged TP of RM9.95, said it expected Maybank to demonstrate resilience while sustaining its position as the leading bank in Malaysia in terms of market share.
“We believe Maybank’s ability to provide the most sustainable returns via its consistent market-leading dividend yields (7%-8%) warrant further accumulation of its shares,” Kenanga Research said.
The research house said Maybank’s loan growth heading into 4Q23 would be sustained by supportive retail banking business across its main regions. Despite some hiccups seen from the group’s corporate portfolio, this would be unlikely to undermine group-level performance, it said.
Further, Kenanga Research pointed out that Maybank’s net interest margin (NIM) remained within the group’s guided 25-basis-point (bps) compression for 2023.
“To retain NIMs, the group is focusing on current and savings account retention strategies with non-rate offerings while limiting participation on deposit-price competition,” it said.
Meanwhile, Hong Leong Investment Bank (HLIB) Research said Maybank’s NIM could improve in 4Q23 since local fixed-deposit (FD) rivalry had stayed benign and expensive FDs from the January-March 2023 would be repriced downwards.
“In addition, management looks to shy away from price-based competition and emphasise non-rate propositions instead. Also, growth in loans is seen to be chugging along for now,” it explained.
“Besides, we are not worried about asset quality as we believe Maybank is better equipped versus prior slumps.”
HLIB Research reiterated its “hold” call on Maybank with an unchanged TP of RM9.20.
TA Research downgraded Maybank to “hold” from “buy” previously, but kept its TP at RM9.50, citing the risk-reward potential narrowing due to the recent increase in its share price.
It expected Maybank’s earnings to be supported by potential asset-quality recovery and ongoing efforts to enhance asset-quality management, leading to a lower net credit charge-off (NCC) rate.
Maybank maintained its NCC guidance at between 30 and 35 bps for 2023.
