Research house retains ‘hold’ call on Maybank despite higher earnings

PETALING JAYA: Despite a commendable performance by the country’s biggest bank by asset size for its third quarter (3Q17) financial year, a research house is retaining its “hold” call on the bank due to its unattractive valuation.

CIMB Research said although it was positive on Malayan Banking Bhd‘s (Maybank) strong earnings recovery for its nine months, it was retaining its “hold” call on the stock given its unattractive valuation.

“Its current valuation of financial year 2018 forecast (FY18F) price-to-earnings of 12.7 times is more than 1 standard deviation above its five-year average of 11.2 times.

“The upside/downside risks to our call are a pick-up/slowdown in loan and fee income growth.

“Also unchanged are our FY17-19F earnings per share forecasts and dividend discount model based target price of RM9.05,” it added.

The research outfit also added it was expecting Q4 17 net profit to be lower yearon-year (y-o-y).

Based on its forecasts, it expect the group’s net profit to decline slightly quarter-on-quarter (q-o-q) to about RM1.9bil as the low loan loss provisioning (LLP) in 3Q17 was not sustainable.

“Given the much higher base in 4Q16, which was lifted by gains from the sale of investments, its reported 4Q17 net profit could also decline y-o-y,’’ it noted.

Maybank’s net profit breached the RM2bil mark in 3Q17 ended Sept 30, 2017. It reported that its net profit rose 12.9% to RM2.02bil from RM1.79bil in the same period a year ago.

The profits were up 22.2% from Q2 17. Its revenue increased by 2.7% to RM11.59bil from RM11.28bil for the quarter. Earnings per share was at 19.86 sen compared with 17.97 sen previously.

The bank’s nine months net profit surged by 23% y-o-y, primarily driven by a 20.6% y-o-y drop in LLP.

Another catalyst for the said earnings was due to the 13 basis points (bps) y-o-y expansion in net interest margin, which helped the bank achieve a strong 8% y-o-y increase in net interest income in the nine months against a loan growth of 5.3% y-o-y at end-September 2017.

On the flip side, for the said period, non-interest income fell by 4.8% y-o-y due to lower investment income.

The research house said Maybank’s nine months net profit came in within its expecta- tions, accounting for 74% of the research outfit’s full-year forecast.

“However, this, in our view, was slightly higher than the market’s expectations at 76% of Bloomberg consensus’ estimates. As per norm, no dividend was declared in the 3Q17,’’ it noted.

CIMB Research reported that Maybank’s loan growth eased from 6.4% y-o-y at endJune 2017 to 5.3% y-o-y at end-Sept’17, mainly due to the slowdown in two major markets – from 10.1% y-o-y at end-June’17 to 7.7% y-o-y at end-Sept’17 for Singapore and from 7.5% y-o-y to 2.9% y-o-y for Indonesia.

The loan growth in its biggest market, Malaysia, inched up from 6.4% y-o-y at endJune’17 to 6.6% y-o-y at end-Sept’17, topping the industry’s growth of 5.2%.

By segment, overall loan growth was supported by a 11.4% y-o-y expansion in residential mortgages in September 2017.