Maybank core net profit within expectations

KUALA LUMPUR: Malayan Banking’s (Maybank) core net profit (CNP) for the nine months ended Sept 30 was within CGS-CIMB Equities Research’s expectations, accounting for 79% of its full-year forecast.

“However, we regard the result as above market expectations, at 83% of the Bloomberg consensus estimate.

“The interim dividend per share of 13.5 sen was a positive surprise, as Maybank had previously stated that it would only revisit its dividend payments on the release of its fourth quarter 2020 financial results in February,” it said in its report.

CGS-CIMB Research said Maybank’s third quarter 2020 CNP surged by 65.4% quarter-on-quarter (q-o-q) due to a 53.8% q-o-q drop in loan loss provisioning (LLP).

However, the third quarter CNP fell by 2.3% year-on-year (y-o-y), impacted by a 6.5% y-o-y decline in total revenue (-14.6% y-o-y for net interest income and -2.9% for non-interest income).

The research house has projected a net profit of Rm1.53bil for Maybank in the fourth quarter, translating to a decline of 21.6% q-o-q.

“This is based on our expectation of a q-o-q drop in the fourth quarter investment income as we think the high third quarter investment income (+87.2% y-o-y) is not sustainable.

“However, we project a lower credit chargeoff rate (CCOR) of 33bp for the fourth quarter (vs 89bp in the nine-month 2020), based on our FY20F CCOR of 74bp (vs 75-100bp guided by the bank), as Maybank has built up a strong provision buffer in the nine-month 2020, ” it said.

CGS-CIMB Research raised its FY20-22F core EPS forecasts by circa 2%, as it change our assumption for a flattish loan base in FY20F (from a 1% decline in total projected previously), in line with the increase in its projected loan growth for the banking industry, and reverse out the impact of a 25bp OPR cut that was expected for September 2020 (and did not materialise).

With this, its dividend discounted model based target price for Maybank has increased from RM7 to RM8.07 following the roll-over to end-21f.

“Despite the expected decline in LLP in the fourth quarter and FY21F, we retain our ‘hold’ call on Maybank as we are concerned about its weak net interest income, arising from margin contraction. Its valuation is reasonable as its CY21F P/E of 12.2 times is slightly below the five- year historical average of 12.7 times. We prefer Public Bank for exposure to the sector,” it said.