KUALA LUMPUR: MIDF Amanah Investment Bank Bhd (MIDF Research) has maintained its buy call on Malayan Banking Bhd (Maybank) with a higher target price (TP) of RM8.20 from RM8 previously.
This comes after the largest bank (by assets) in Malaysia unveiled better financial results yesterday, which revealed that its net profit grew 13.3% to RM2.05 bil in the first quarter ended March 31, 2020 (1Q20), from RM1.81 bil in the same period last year.
In a note today, MIDF Research said Maybank’s 1Q20 earnings of RM2.05 bil was within its expectations.
“As we had expected, the group managed to record a good performance in 1Q20. However, this was before the declaration of Covid-19 as a pandemic and the implementation of the movement control order,” it said.
Despite the headwinds this year, the research house believed that the group’s fundamentals remain intact.
“We saw that trading income came in strong, as expected, while net interest income (NII) was slightly better than we had anticipated, given the 50 basis points (bps) Overnight Policy Rate (OPR) cuts in Malaysia and 50 bps cuts in Indonesia in the quarter,” it said.
However, it said going forward, the bank’s management expected further weakness in NII with a net interest margin (NIM) compression of -15bps from the full effect of the rate cuts.
“Also, there will be a Day-One modification loss for fixed rate financing assumptions due to the moratorium of hire purchase loans in Malaysia, which could amount to circa RM1 bil.
“However, the management indicated that they are discussing this matter with authorities on its treatment,” it added.
MIDF Research also understood that the bank had additional provisions of about RM600 mil for loan losses, RM400 mil for forward looking assessment based on weakening macro-economic factors and RM200 mil for retail portfolio slippage.
“We view these additional provisioning as a prudent move, given the strong trading income and the heightened risk. In fact, it is a global banking trend we had recently observed,” it said.
Hence, it expected provisions to increase further especially after the loan moratorium ends.
At the current juncture, the management is guiding a credit cost of between 75bps to 100bps.
Overall, MIDF Research was positive on prudent actions taken by Maybank.
“Given its size, status as a domestic systemically important bank (D-SIB), conservatism and intact fundamentals, we maintain our buy call.
“Our valuation is based on the price-to-book-value ratio of 1.1 times, which takes into account the current challenging climate. Dividend yield of circa 4.8% will also moderate any downside risks,” it added.
At 11.01am, Maybank’s share ticked up two sen RM7.53 with 1.88 million shares traded. – May 22, 2020, Bernama
