MAYBANK: Financial Group Delivers Solid Earnings Amidst Strategic Cost Control and Robust Non-Interest Income

A leading financial group reported a 4% year-on-year increase in its second-quarter net profit, reaching RM2.63 billion, with first-half net profit of RM5.21 billion aligning with both analyst and consensus estimates, representing 51% of full-year projections. This solid performance was primarily driven by improved non-interest income and strategic cost management, which effectively counteracted a softer net interest income environment.

Performance Review

The group’s net fund-based income saw a marginal 1.2% year-on-year rise to RM9.89 billion for the first half of FY25. This was, however, impacted by a moderation in loans growth to 0.8%, with the Indonesian global banking loans book experiencing a significant 32% contraction. Management indicated this was a strategic move, pivoting away from low-margin state-owned enterprise loans, and has revised its overall loans growth guidance to approximately 3% from a previous 5-6% range due to geopolitical uncertainties and FX impacts.

Net interest margin (NIM) compression continued to be a factor, influenced by a softer rate environment, particularly in Singapore. The group’s 1HFY25 NIM stood at 2.02%, down from 2.05% in FY24. However, proactive fund management strategies, including the release of expensive fixed deposits and leveraging alternative funding sources like Medium Term Notes (MTNs) and offshore markets, are being employed to mitigate ongoing NIM pressure.

Significantly, non-interest income demonstrated robust growth, climbing 7% year-on-year to RM5.51 billion for 1HFY25. This was largely attributable to an 18.2% year-on-year surge in global markets income, stemming from investment gains on the disposal of FVOCI bonds amid a favorable rate cycle. Wealth management fees also contributed positively, increasing 15.1% year-on-year. Conversely, investment bank-related fees declined 8.6% year-on-year due to lower brokerage income.

Strategic Management & Asset Quality

In terms of asset quality, the group reported a lower net credit cost of 24 basis points for 1HFY25, an improvement from 27 basis points in the prior year and below the guidance of 30 basis points. This was supported by stronger recoveries from corporate borrowers, notably in Singapore. As a pre-emptive measure against potential tariff impacts, an additional RM0.2 billion provision overlay has been allocated, bringing the total management overlay to RM2 billion, with 55% directed towards retail and SME portfolios. Despite these efforts, the group’s gross impaired loan (GIL) ratio experienced a marginal 3 basis points quarter-on-quarter uptick to 1.3%, reflecting observed asset quality weakness among specific corporate borrowers in Greater China and a slight deterioration within the SME and auto portfolios. Loan loss coverage remains healthy at 117.9%.

Future Outlook & Recommendation

Analysts maintain a favorable view on the financial group, citing its defensive earnings outlook, an attractive dividend yield exceeding 6%, and a stable asset quality outlook, bolstered by sufficient management overlay. The institution is expected to continue leveraging its active funds management to navigate slower loans growth and maintain profitability.

Consequently, TA SECURITIES has maintained an Outperform call with a target price of RM11.20 on the stock.