Maybank’s 4Q18 results may be lower than target


Malayan Banking Bhd’s (Maybank) fourth-quarter results could see a risk of a slight miss due to a weaker than expected non-interest income (NOII), according to RHB Research Institute Sdn Bhd.

Banking analyst Fiona Leong said management’s guidance suggests the RHB’s forecasts of NOII and operating expenses may have been a little too optimistic.

“NOII is 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 quarter-on-quarter (QoQ), on booking of back-dated pay following the formalisation of collective agreements for union staff in December 2018,” she said in a research report last Friday.

As such, Leong said this would result in negative jaws for the fourth quarter of 2018 (4Q18).

“That said, asset quality remains stable,” she added. Scheduled to release its 4Q18 results on Feb 26, 2019, Maybank remains one of RHB Research’s preferred picks for exposure to Malaysian banks.

Maybank is currently valued at 1.3 times FY19F price-to-book value (P/BV) and RHB’s target price (TP) is based on a Gordon Growth Model- derived P/BV of 1.52 times (historical mean: 1.41 times).

On the overall preview of 4Q18 results, Leong said Maybank’s net interest income is expected to be slightly higher as net interest margin ticked up QoQ, while loan growth was stronger on modestly higher corporate loans from pre-approved lines and stable consumer loans.

“On a year-on-year (YoY) basis, its Malaysian loan book grew at a slower pace versus 2017’s +5% due to lower corporate lending,” she said.

Leong said loan growth was also impacted by lower utilisation of trade facilities as commodity prices softened, while a weaker demand resulted from the construction sector.

“While our forecasts of NOII 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 RM2.02 billion (+3% QoQ, -5% YoY) for 4Q18 and RM7.81 billion (+4% YoY) for FY18,” she added.

In the meantime, Leong said credit cost is expected to be within the 40 basis points (bps)-45bps guidance, given no major deterioration in asset quality.

Maybank’s asset quality is seen as stable as the bank has not seen any new stresses from its oil and gas exposures.

“Joint underwriting of unsubscribed shares from Sapura Energy Bhd’s rights issue is not a concern, as the exposure is not substantial.

“The bank has recently approved a further extension of Hyflux Ltd’s deadline from Jan 31 to Feb 28 to ink a binding agreement with a successful investor or bidder, for the divestment of Tuaspring,” Leong said.

In terms of 2019 outlook, the research house sees uncertainty in global growth as a key concern for 2019.

“Domestically, there are 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 and deposit competition remains keen, and management indicated its readiness to raise rates when necessary,” she added.

RHB Research reiterates its ‘Buy’ call on Maybank shares with an unchanged TP of RM11.

A check on Bloomberg shows that the consensus one-year TP for the company is RM10.23, for a potential return of 6.7%.

Maybank was unchanged at RM9.59 with a market capitalisation of RM105.97 billion last Friday.

Its share price declined 4.9% in the past 52 weeks, down 1% in the past five days and rose 1.3% in the past 30 days.