by M JAY SHEILA / pic MUHD AMIN NAHARUL

MALAYAN Banking Bhd (Maybank) may have been a little too “gung-ho” when setting their targets two years down the road. 

“We view the 2025 targets set by the management as too aggresssive, hence ascribe a high probability on the bank missing those. Asset quality is one of the key risks in our investment thesis, particularly in the oil and gas (O&G) sector, as it tends to be chunky,” JP Morgan Research said in a research note released last week. 

The foreign research house is ‘Underweight’ on Maybank, maintaining the target price of RM8.00. Maybank closed at RM8.65 when the research note was released previous Friday. 

Another factor leading to its ‘Underweight’ tag on Maybank was asset quality concerns, along with limited pre-provision operating profit drivers. 

“A key source of risk is its exposure to a large O&G industry, where the nature of credits tends to be chunky. The bank has 3% of loans in non-retail O&G, with 30% of those in non-performing loan,  special mention and watch-list. The bank has provided for some of these exposures, but a sharper than expected deterioration in exposures in 2022-2024 cannot be ruled out,” it said. 

The ‘Underweight’ rating means that the research house deems that over the next six to 12 months, the stock will underperform the average total return of the stocks in the analyst’s coverage universe. 

The report said the Etiqa IPO poses the single-largest upside risk to the stock, in addition to a pick-up in corporate loan demand. 

For the first six months ended June 30, 2022 (1H22), Maybank posted a net profit of RM3.9 billion on a turnover of RM23.12 billion, down 10.4% from the same period a year before. 

The group’s net interest income and Islamic banking income for 1H22 increased by RM512.2 million or 5.2% to RM10.28 billion compared to 1H21. In the same period, its net earned insurance premiums from the insurance and takaful subsidiaries decreased by RM71.2 million from the year before to RM4,624.5 million. 

In its 2Q22 exchange filing, Maybank said that against a rising interest rate environment, Maybank will selectively grow its loan book across its key markets while defending its low-cost deposit base. 

It said it will also continue to look for fee-based income opportunities within the wealth management, global markets, investment banking, asset management and insurance segments. 

“Capital and liquidity conservation remain key priorities given external headwinds and market volatility. The group will focus on proactively engaging with customers on a targeted basis to extend additional support for those in need and as part of its robust asset quality management process,” it added. 

The group also said it will also build on its extensive digital ecosystem and franchise strength to deepen market penetration and capture growth opportunities, while strategic investments will be channeled to enhance its digital and sustainability capabilities aligned to its M25 priorities.

• This article first appeared in The Malaysian Reserve weekly print edition