MAYBANK: Strong Earnings on Cost Controls Amid Softer Loan Demand, Buy Rating Maintained

Malayan Banking Berhad (Maybank) reported a 4.0% year-on-year (YoY) increase in its interim half-year 2025 (IHFY25) net profit, aligning with market expectations. The financial institution’s annualised Return on Equity (ROE) climbed to 11.5% from 11.0% in IHFY24, successfully meeting management’s full-year target of surpassing 11.3%. Shareholders will receive a first interim cash dividend of 30 sen per share, a slight increase from 29 sen in IHFY24, reflecting an effective net cash dividend payout ratio of 69.7%.

The rise in net profit was largely underpinned by a 1.2% YoY improvement in net fund-based income, reaching RM9.89 billion. Furthermore, non-interest income (non-NII) was a significant growth driver, expanding by 7% YoY, primarily due to enhanced investment and trading income. Core non-NII saw a 6.5% increase, buoyed by a 15.1% rise in wealth fees and global markets income from the disposal of FVOCI bonds. However, investment banking related fees experienced an 8.6% decline.

Operating efficiency showed mixed results; total overhead expenses grew 3.8% YoY, attributed to higher personnel costs (+5.7%), marketing expenses (+14.1%), and establishment expenses (+1.5%). This led to a slight increase in the group’s cost-to-income (CTI) ratio to 48.9% from 48.6% a year ago. Despite this, net impairment losses rose 2.5% YoY to RM924.1 million, but the annualised net credit charge-off rate eased to 24 basis points (bps), remaining within management’s guidance of less than 30 bps. Asset quality remained robust, with the loan loss coverage at 117.9% and a slight increase in the Gross Impaired Loan (GIL) ratio to 1.30%. Capital ratios, including CET1 at 14.68% and total capital at 17.93%, remained comfortably above regulatory requirements.

Market Dynamics and Outlook

Loan growth experienced a softer pace, expanding by 1.3% YoY compared to 5.3% YoY in FY24. Growth was predominantly driven by Malaysia (+6.8% YoY), offsetting contractions in international operations. Net interest margin (NIM) compressed by 6 bps to 2.0% in 2Q25, narrowing by 3 bps year-to-date. Group deposits, however, showed strong growth, rising 6.1% YoY, while the Loan-to-Deposit (LD) ratio slightly eased to 90.2%.

Looking ahead, management has revised its FY25 loan growth guidance downwards to approximately 3% from the previous 5-6% range. This more cautious stance is due to weakened business sentiment, ongoing global tariff uncertainties, and a disciplined approach to loan pricing, particularly within state-owned enterprises in Indonesia. Furthermore, a slight compression in NIM for FY25 is anticipated, influenced by recent policy rate cuts in Malaysia and Indonesia, and sustained competitive intensity.

Despite these headwinds, Maybank aims for continued growth across its key markets, with loan expansion in Malaysia and Singapore expected to outpace system averages. The group is on track to meet its ROE target, maintain its CTI ratio below 49%, and uphold robust asset quality. Overlays of RM2.0 billion provide additional buffers against potential impacts from US tariff-related developments. Fee income is also projected to grow at a healthy pace, supported by wealth management, foreign exchange, and investment banking activities.

Recommendation

TA Securities maintains its “BUY” recommendation for Maybank, with a target price of RM11.40. This valuation implies a 16.9% upside from its last traded price of RM9.75, based on an implied price-to-book value of 1.31x derived from the Gordon Growth Model.