Malayan Banking Bhd
(Feb 8, RM9.58)
Maintain buy with an unchanged target price (TP) of RM11: Malayan Banking Bhd (Maybank) remains one of our preferred picks for exposure to Malaysian banks. The bank is scheduled to release its 4QFY18 results on Feb 26. We see risk of a slight miss, due to a weaker-than-expected non-interest income. That said, asset quality remains stable. Maybank is currently valued at 1.3 times forecasted financial 2019 (FY19F) price to book value (P/BV). Our TP is based on a Gordon Growth Model (GGM)-derived P/BV of 1.52 times (historical mean: 1.41 times).
Management guided for a quarter-on-quarter (q-o-q) improvement in 4QFY18 operating income. Net interest income is expected to be slightly higher as net interest margin ticked up q-o-q, while loan growth was stronger on modestly higher corporate loans from pre-approved lines and stable consumer loans. On a year-on-year (y-o-y) basis, its Malaysian loan book grew at a slower pace as versus 2017’s +5% due to lower corporate lending. Besides being more selective, loan growth was also impacted by lower utilisation of trade facilities, as commodity prices softened, while a weaker demand resulted from the construction sector.
Non-II is also likely to be higher, as lower contractual liabilities for the insurance business would offset the expected decline in investment and trading income.
Operating expenses are forecast to rise q-o-q, on booking of back dated pay following formalisation of collective agreements for union staff in Dec 2018. This would result in negative jaws for 4Q18. Credit cost is expected to be within the 40-45 base points guidance, given no major deterioration in asset quality. Management’s guidance suggests that our forecasts of non-II and operating expenses may have been a little too optimistic. Still, these would be compensated by possibly lower-than-expected loan provisions.
Overall, we expect Maybank to post a net profit of RM2,024 million (+3% q-o-q, -5% y-o-y) for 4QFY18 and RM7,811 million (+4% y-o-y) for FY18.
Maybank has not seen any new stresses from its oil & gas exposures. Joint underwriting of unsubscribed shares from Sapura Energy’s rights issue is not a concern, as the exposure is not substantial.
The bank has recently approved a further extension of Hyflux’s (HYF SP, NR) deadline from Jan 31 to Feb 28, to ink a binding agreement with a successful investor or bidder, for the divestment of Tuaspring.
The management sees uncertainty in global growth as a key concern for 2019. Domestically, there are now some policy certainties from the new government although more needs to be done. Maybank expects growth in consumer lending, albeit less robust than in previous years. Deposit competition remains keen and management indicated its readiness to raise rates when necessary. — RHB Research Institute, Feb 8