• Stay BUY and MYR10.20 TP, 17% upside and c.7% FY23F yield. FY22 results were broadly within expectations. FY22 ROE of 10% was at the upper end of management’s 9.5-10% guidance. For FY23, Malayan Banking targets an ROE of 10.5-11%, with the absence of Cukai Makmur and lower impairments to more than offset NIM pressures. Dividend yields and 1.2x P/BV valuation are attractive, in our view.

• FY22 within expectations. 4Q22 net profit of MYR2.2bn (flat QoQ, +5% YoY) lifted FY22 bottomline to MYR8.2bn (+2% YoY), accounting for 102% and 99% of our and Street’s full-year earnings. Reported FY22 ROAE was 10% (FY21: 9.8%) – at the top end of management’s 9.5-10% target. CET- 1 was solid at 14.8% (3Q22: 13.8%), which allowed Maybank to declare an all-cash second interim DPS of 30 sen (4Q21: 30 sen). FY22 DPS of 58 sen (FY21: 58 sen) translates to a payout ratio of 84.6% (FY21: 84.5%), albeit with a higher net cash payout of 77% (FY21: 58%).

• Sequentially, pre-tax profit inched up 3% QoQ. Operating income fell 7% QoQ, mainly due to lower marked-to-market (MTM) gains on financial liabilities – this was more than offset by decreased loan provisions (lower provisions for individual allowances) and write-backs in impairments for financial investments. Loans and deposit bases were stable QoQ, but the deposit mix continued to see a shift away from CASA to fixed deposits (CASA ratio dipped to 39% from 3Q22’s 42%). NIM eased 3bps QoQ as pressures from funding costs started to be felt. The bank sees one more rate 25bps hike in Malaysia and Indonesia, but NIM seems to have peaked.

• Asset quality improved. GILs were down 8% QoQ, with the decline largely broad based. The group’s GIL ratio improved to 1.57% in 4Q22 (3Q22: 1.70%, 4Q21: 1.99%) while LLC rose further to 131% (3Q22: 122%). The improvement in asset quality and absence of additional pre-emptive provisions led to net credit cost easing to 22bps in 4Q22 (3Q22: 41bps). Maybank has retained MYR1.7bn (38% for retail portfolio) in overlays as it continues to monitor the outcome of loans exiting relief programmes. So far, there has been minimal slippage in asset quality.

• FY23 targets: i) ROE of 10.5-11%, ii) NIM compression of 5-8bps, iii) CIR of up to 47.5%, and iv) credit cost of 35-40bps. No specific guidance was provided on loans, but Maybank expects to grow in line with industry growth. Management also said it would be comfortable with a CET-1 ratio of 13%. Hence, we see room for dividend payouts to stay above the 40-60% target and for a higher proportion of cash DPS – both of which would be supportive of ROEs ahead. See Figure 2 for more details.

• We lower FY23F-24F earnings by c. 5%, mainly to bring our NIM projections in line with Maybank’s guidance. We also introduce our FY25F numbers. Our TP is kept at MYR10.20, which includes a 4% ESG premium based on RHB’s in-house methodology. The intrinsic value of MYR9.77 is based on a GGM-derived 1.32x P/BV – in line with its historical mean.

Source: RHB Research - 28 Feb 2023