KUALA LUMPUR (Nov 25): CIMB IB Research has slashed its forecast for Malayan Banking Bhd's (Maybank) earnings per share (EPS) by 2% and 13% for financial years 2017 (FY17) and FY18, after projecting a slower loan growth in the next two years.

In a note to clients yesterday, the research firm said it has lowered FY17's and FY18's loan growth projection to 3%, from 9% to 10%, which is closer to the management's target for FY16. 

"We cut FY16-18F EPS forecasts by 2-13%, as (1) we lower projected FY17-18 loan growth from 9-10% to about 3% on the assumption that FY17-18 loan growth would be close to the management’s target for 2016, and (2) raise the assumed share base from 9.8 billion shares to 10.2 billion shares for FY16-18F, to factor in the new shares issued under the dividend reinvestment plan," said CIMB Research analyst Winson Ng. 

In view of this, Ng said Maybank's DDM-based target price (TP) falls from RM10 to RM9.20, despite the roll-over of the TP to end-2017. Rating in the stock, however, was kept at "Add".

In announcing its third financial quarter earnings yesterday, the country's largest banking group cut its loan growth projection for the current financial year, after its earnings for the quarter hurt by a higher tax charge.

Net profit for July-September was RM1.795 billion (US$402.9 million), 5.4% lower than RM1.898 billion a year earlier.

The lender's fourth straight quarterly drop in profit comes amid slowing loan growth at home and exposure to the oil and gas industry that has been hit by falling prices.

Thus, it lowered its full-year estimate for loan growth to 2–3% and cut the forecast for return on equity to 10.5–11%, due to "selective asset growth".

Investors appeared to be lukewarm to the weaker earnings and lowered in loan growth target. As of 10.29 a.m., the stock was traded unchanged at RM7.70, after climbing to a high of RM7.73 earlier. 

A total of 486,200 shares exchanged hands, valuing it at RM78.49 billion.

On Maybank's financial performance, Ng noted Maybank’s gross impaired loan (GIL) ratio fell from 2.34% in June 2016 to 2.22% in September 2016, while loan loss coverage strengthened from 70.5% to 74.8% over the same period, after a rise in the preceding three quarters.

According to Ng, management has guided for an even lower credit cost in 4QFY16 versus 3QFY16).

"On the flip side, we are negative on the management’s downward revision of its targets for FY16 — from 11-12% to 10.5-11% for ROE (return on equity), and from 8-9% to 2-3% for overall loan growth," he added. 

Ng shared that although the 9MFY16 net profit only accounted for 68% of his full-year forecast, he regarded the results as being in line, on anticipation of stronger 4QFY16 earnings from an expected one-off gain from the sale of shares in Visa Inc and lower provisioning.

"Based on the same reasoning, the results would have been above market expectations at 73.2% of consensus," he added.