MAYBANK: Earnings Beat Expectations on Robust Non-Interest Income, Positive Outlook Maintained

An investment bank has maintained its “BUY” rating on a prominent Malaysian financial institution, setting a target price of MYR10.90. This target indicates a 12% upside potential and an attractive circa 6% yield, following the institution’s solid second-quarter 2025 financial performance, which largely aligned with market expectations.

Performance Overview

The financial institution reported a net profit of MYR2.6 billion for the second quarter of 2025, reflecting a 2% quarter-on-quarter and 4% year-on-year increase. This robust performance pushed its first-half 2025 earnings to MYR5.2 billion, successfully meeting 50% of both the investment bank’s and consensus full-year PATMI (Profit After Tax and Minority Interests) forecasts. The reported 1H25 Return on Equity (ROE) of 11.5% is well on track to achieve the institution’s ambitious ≥11.3% target for FY25. Quarterly profit growth was primarily propelled by a higher contribution from associates and a lower effective tax rate, while annual growth was significantly bolstered by stronger non-interest income derived from treasury activities and insurance. Notably, credit costs remained judiciously managed at 25 basis points (bps) for the quarter, even after booking approximately MYR200 million in management overlays, bringing the total overlay stock to a substantial MYR2 billion.

Operational Landscape and Challenges

Despite the overall positive results, the institution navigated certain operational headwinds. Its Net Interest Margin (NIM) experienced a 4bps quarter-on-quarter and 6bps year-on-year decline, largely attributable to the lower benchmark rate environment in Singapore and, to a lesser extent, Indonesia. Loan growth remained subdued, recording a flat quarter-on-quarter performance and a modest 1% year-on-year increase. This muted growth was primarily influenced by the overseas loan book, including Indonesia’s strategic reduction of exposure to state-owned enterprises (SOEs) amidst thin NIMs, and the ongoing derisking of its Greater China corporate portfolio. Conversely, domestic loans demonstrated resilience with a healthy 7% year-on-year (1% quarter-on-quarter) rise, chiefly driven by community financial services. Gross Impaired Loans (GIL) saw a slight uptick of 2% quarter-on-quarter and 3% year-on-year, primarily stemming from judgmental triggers in the commercial segment and an impaired Hong Kong corporate account.

Forward-Looking Strategy and Outlook

Looking ahead, management has prudently revised its loan growth target downwards to approximately 3% from an earlier range of 5-6%. This adjustment reflects year-to-date softness and a proactive stance. A slight NIM compression is now anticipated for the full year, a shift from the previously stable outlook, as it factors in year-to-date pressures in Singapore and the impact of the Overnight Policy Rate (OPR) cut in the second half of 2025. Nevertheless, the credit cost guidance remains conservative at ≤30bps (excluding potential provision writebacks), and crucially, the ROE guidance of ≥11.3% has been firmly maintained. The institution has proactively reinforced its underwriting standards for reconditioned cars and has reported improved collections and recoveries in July, thereby mitigating concerns regarding major asset quality issues moving forward.

Investment Recommendation

Given the institution’s resilient earnings, well-controlled credit costs, and sustained ROE targets amidst a challenging operational backdrop, the investment bank reiterates its “BUY” recommendation. The affirmed target price of MYR10.90 underscores continued confidence in the institution’s strategic ability to navigate market headwinds and deliver sustained shareholder value.