MAYBANK: Earnings Meet Forecasts Amidst Loan Growth Challenges, Target Price Trimmed
Investment Bank | TA SECURITIES |
---|---|
TP (Target Price) | RM0.25 (+25.0%) |
Last Traded | RM0.20 |
Recommendation |
A major Malaysian banking group has reported its second-quarter and half-year results for FY25, with core net profit aligning with analyst and street forecasts. While the bank demonstrated solid core earnings driven by robust net interest and non-interest income and effective cost management, it faces headwinds in loan growth and anticipates further net interest margin (NIM) compression. This has led to a revised lower target price and a maintained “Neutral” rating from its investment bank.
Performance Review
For the first half of FY25 (6MFY25), the group recorded a core net profit of RM5,217 million, marking a 4% year-on-year increase. The second quarter of FY25 (2QFY25) saw a core net profit of RM2,628 million, up 2% quarter-on-quarter. These figures were consistent with both internal and street expectations, representing 50% of full-year forecasts. The positive performance was primarily attributed to stronger net interest income (NII) and non-interest income (NOII) results, which effectively offset higher operating expenses (OPEX) and tax charges in 6MFY25. Similarly, in 2QFY25, lower tax expenses and improved associate performance helped mitigate increased OPEX and provision charges. A dividend per share (DPS) of 29.0 sen was announced, translating to a payout of 67% for 6MFY25.
Challenges and Operational Headwinds
Despite the solid earnings, the group faces several operational challenges. Its FY25 Net Interest Margin (NIM) guidance has been officially downgraded, largely due to adverse SORA movements in Singapore and, to a lesser extent, in Indonesia. While a healthy liquidity situation offers some room for NIM optimisation by potentially releasing pricier fixed deposits, further compression is anticipated. Loan growth targets for FY25 have also been lowered, primarily impacted by negative foreign exchange movements and a contraction in corporate loans in Indonesia. The group is finding it challenging to replace State-Owned Enterprise (SOE) loans in Indonesia due to tight liquidity caused by high deposit rates. Domestically, loan growth is expected to be affected by the group’s strategy to preserve margins amidst increased competition from smaller banks shifting to primary mortgages.
Asset quality, while generally stable, warrants close monitoring. The group noted a rising volume of performing loans impaired due to judgmental figures, which currently accounts for 0.32% of the overall 1.30% Gross Impaired Loan (GIL) ratio. However, management remains confident in its ability to monitor SME and hire purchase segments, with promising recovery and collections noted in July.
Future Outlook and Recommendation
Looking ahead, management remains optimistic regarding non-interest income flows, anticipating improved debt capital market flows and the potential realisation of investment securities as sustainable revenue sources. The residential mortgage segment is also expected to deliver at least 8% year-on-year growth for FY25, supported by a robust pipeline.
However, in light of the lower loan growth guidance, the group’s core net profit forecasts for FY25F, FY26F, and FY27F have been adjusted downwards by -0.7% to -0.2%. Key downside risks identified include steeper-than-expected NIM compression, higher-than-expected net credit cost (NCC), and persistently weak loan growth.
Given these factors, the investment bank has reiterated its “Neutral” recommendation on the stock. The target price has been revised downwards to RM9.92 from the previous RM10.20, based on altered earnings prospects and ROE-based valuations for FY26F.