MAYBANK: Financial Institution Exceeds Expectations on Cost Controls, Target Price Raised

A prominent financial institution concluded its financial year 2025 with a strong performance, reporting full-year earnings that surpassed expectations. The robust results were primarily driven by effective liability management strategies and significant cost efficiencies, leading to an expansion in net interest margin (NIM) and muted net impairments. Analysts have maintained a “BUY” recommendation for the firm, with a revised target price reflecting improved return on equity (ROE) prospects.

Performance Review

The institution announced a net profit of MYR2.7 billion for the fourth quarter of 2025, marking a 2% quarter-on-quarter and 6% year-on-year increase. This brought the full-year 2025 earnings to MYR10.5 billion, a 4% rise from the previous year, exceeding both the firm’s and market estimates by 101%. The reported Return on Equity (ROE) of 11.7% successfully met the internal target of ≥11.3%. Shareholders also benefited from a second interim dividend per share of 33 sen, contributing to a full-year dividend payout of 63 sen, which translates to a robust 72.4% payout ratio.

Operational Highlights

A key driver for the strong earnings growth was an impressive expansion in Net Interest Margin (NIM), which saw a 7 basis points quarter-on-quarter and 3 basis points year-on-year improvement. This was attributed to proactive liability management, including a higher loan-to-deposit ratio (LDR) of 93.8% (up from 90.7% in 4Q24), a reduction in high-cost fixed deposits, and the strategic tapping of cheaper non-deposit funding sources. While loan growth remained modest at 1% quarter-on-quarter and 2% year-on-year, asset quality improved, with the gross impaired loan (GIL) ratio falling by 2% quarter-on-quarter. Loan loss coverage (LLC) also improved, ticking lower to 98% (from 103% in 3Q25), indicating a comfortable level of management overlay.

Future Outlook and Investment Implications

Looking ahead to 2026, the institution has provided a positive guidance, forecasting a Return on Equity (ROE) of ≥11.8%, a Cost-to-Income Ratio (CIR) of ≤49%, and a credit cost of approximately 20 basis points. Group loan growth is projected to be 4-5% in constant currency terms, with NIM expected to remain stable at 2.05-2.1%. Management also highlighted the potential for unlocking excess capital at subsidiaries and confirmed its commitment to sustaining the current high dividend payout level.

Analysts have updated their financial models to reflect the full-year 2025 results and the firm’s 2026 guidance, noting that the impact on future earnings is largely immaterial. However, the assumed higher dividend payout of 72-73% has instilled greater confidence in the firm’s ROE outlook. Consequently, the target price has been raised to MYR13.20 (from MYR12.35 previously), incorporating an unchanged 4% ESG premium, affirming a “BUY” recommendation with a 10% potential upside and an attractive circa 6% FY26F yield.