Friday 29 Mar 2024
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Malayan Banking Bhd
(April 30, RM9.21)
Maintain outperform with target price (TP) of RM10.26:
PT Bank Internasional Indonesia Tbk (BII), a subsidiary of Maybank, posted earnings growth of 34% year-on-year (y-o-y) for the parent’s first quarter ended March of financial year 2015 (1QFY15). The 34% spike in earnings came on the back of higher interest income (9%) and  fee-based income (21%).

Net interest margin (NIM) widened 27 basis points (bps), thanks to better price discipline in lending and deposit taking. Loan-to-deposit ratio (LDR) jumped 4 percentage points (ppts) to 95% as loans (+5%) grew faster versus deposits (flat).

Cost-to-income ratio (CIR) fell 2ppts to 64%, resulting from strict cost controls.  Asset quality deteriorated slightly as gross impaired loan ratio (GIL) increased to 2.8% (74bps) and credit charge ratio ticked up 23bps to 1.7%. Annualised return on equity (ROE) improved 1ppt to 8% and similarly, regulatory capital ratios were enhanced by 2ppts to 3ppts.

Contrary to the above, earnings dipped 29% due to higher operating expenditure (14%) and loan loss provision (30%).

NIM fell 12bps as Bank Indonesia cut the benchmark interest rate by 25bps to 7.5% in February. LDR stood at 95% (-1ppt) as loans and deposits grew 1% and 3%, respectively.

CIR rose 5ppts to 64% as operating expenditure grew 14%, while income expanded at a slower pace of 5%. Asset quality dipped given that GIL increased 57bps to 2.8% and credit charge ratio nudged up 39bps to 1.7%. NIM compression is likely to continue due to heightened competition for deposits and a shift towards higher quality credit.

Asset quality issues should continue to linger — gross non-performing loan (NPL) ratio will remain at elevated levels since commodity prices remain soft.

Our forecasts are left unchanged as BII’s contribution to overall group profit before tax is immaterial (about 3%).

We maintain “outperform”. Our Gordon Growth Model target price of RM10.26 is also maintained. This is based on 1.66 times FY15 price-to-book value where we utilised: (i) cost of equity of 8.5%, (ii) FY15 ROE of 12.2% and (iii) terminal growth of 3%.

All in, we continue to like Maybank for its superior yield offerings of 6% and  extensive regional exposure in Asean. Risks to our call are: (i) steeper margin squeeze, (ii) slower-than-expected loan and deposit growth, (iii) worse-than-expected deterioration in asset quality and (iv) adverse currency fluctuations. — Kenanga Research, April 30

Malayan-Banking_fd_5may15

This article first appeared in The Edge Financial Daily, on May 5, 2015.

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