Kenanga said it maintains its Outperform call on Maybank with a TP of RM11.00 based on the banking giant’s conservative FY24 targets which it said appears reasonable in anticipation of some sectorial risk to emerge (i.e. slower loans growth from
delayed economic activities, higher inflation).
The group stands to maintain its overlays for now, requiring certainty on diminished macro concerns to its loan book repayments. Though dividends could be purely in cash in the near term, yields of 6%-7% are still attractive for the name. Our FY24F/FY25F forecasts are unchanged.
The group’s FY24 loans growth target of 6%-7% (FY23: +9%) is fuelled by slower albeit sustainable demand in most fronts,
with better support coming from recoveries in consumer spending and economic activity. Its global banking units seek to benefit from regional recoveries as well, predominantly in Indonesia’s high-growth status and rising corporate portfolios.
Domestically, the group expects tailwinds to arise from more secondary mortgage transactions which Kenanga opines may lead to more market share as certain competitors may lose appetite to be aggressive in this space. Meanwhile, it is investing in more interface enhancements and feature to keep stickier the SME and business accounts. That said, as the group is expecting the roll-out of public infrastructure projects to meet its targets, untimely delays may undermine its traction here.
As for margin compression, Kenanga notes that it could be yield driven. Coming out of FY23’s severe NIM compression of 27 bps from a tighter deposits landscape, the group believes that similar pressures could have mostly subsided. On the flipside, the group continues to expect NIM compression to occur in FY24, citing up to -5 bps. The house believes that this could be tied to higher loans demand across the board in line with better economic prospects, as banks now have to compete more aggressively to retain financing market share.
The group’s overlay reserve of RM1.6b as of 4QFY23 will likely to remain allocated for, in lieu of retail SMEs likely to be vulnerable to macro shifts in the near-term. Adding to this, the group may continue to top up its provisions on these accounts to carry its loan loss coverage ratio to be above 100%. Consideration to write back its excess provisions may only occur in FY25, soonest.
In FY23, the group enjoyed strong NOII (+38%) mainly from surges in treasury gains. While this could moderate in FY24, better traction could be seen from its fee-based streams with wealth management business seeking to penetrate into regional markets. Meanwhile, better insurance results from Etiqa could be on the way, thanks to efforts to drive bancassurance and motor class products.
The house noticed the group’s lapse in dividend reinvestment scheme to be a surprise in FY23. Going forward, the group
looks to continue proposing cash dividends although it mentioned that it was not to manage share base liquidity. That said, while the group has a dividend policy of 40%-60%, Kenanga said it continues to anticipate payments above that with the recent full cash payment to still linger at c.77% of earnings.
