MAYBANK (FV RM9.85 - BUY) 1QFY12 Results Review: Solid Start

The group reported a 17.9% y-o-y and 3.9% q-o-q increase in net profit, propelled by strong trading gains, forex gains, higher brokerage income as well as contribution from Kim Eng which helped drive the group’s 22% q-o-q and 52% y-oy rise in non-interest income. We are raising our  earnings  forecast  marginally upwards by 5.2% to account for 1QFY12’s exceptionally strong trading gains and thereby, tweak upwards our FV to RM9.85 from RM9.60 with a higher ROE assumption of 15.2%. (2.03x FY12 P/BV, 15.2% ROE).

Above expectations.  Maybank’s annualized 1QFY12 net profit was 8.6% above consensus and 10.5% above our estimates, with 1QFY12 earnings representing 27.6% of our full-year forecast. 1QFY12 earnings expanded 17.9% y-o-y and 3.9% q-o-q, despite the preceding quarter’s high base effect arising from the lumpy transfer of surplus income in its insurance division. The stronger-than-expected results were largely driven by a q-o-q surge in trading gains from its available for sale portfolio as well as unrealized gains from derivative instruments, which rose 207.5% q-o-q and 55.9% y-o-y. The focus on core transactional fee income growth performance was commendable, as such income registered a 25.5% y-o-y growth on the back of higher brokerage contribution from Kim Eng and 11.1% q-o-q growth from improved brokerage income, thanks to a more favourable capital market environment and higher transactional loanbased fee income. Net interest income expanded 14.1% y-o-y on the back of an 18.2% y-o-y loans growth but contracted 6.1% q-o-q on the back of a relatively subdued 1.4% q-o-q growth and 16bps q-o-q contraction in NIMs. The NIM compression was largely attributable to higher interest expense arising from its sub-debts raised, yield pressure on mortgage loans and low base effect of preceding quarter NIM which was impacted by a one-off FRS139 accounting treatment on reversal of interest. On a normalized basis, 1Q12 NIM contracted 8bps which is in line with management’s guidance of a full-year 10bps compression.

Group loans growth dragged down by lumpy repayment from Singapore.  The group registered an annualized loan growth of 6.1%, which is slower than our assumed 14% growth as a lumpy trade-financing repayment from its Singapore operations resulted in a 3.6% q-o-q contraction on its Singapore loans books. Management indicated that the overall loans growth is on track to normalise in Singapore. Domestic loans growth was in line with our expectations at an annualised growth pace of 9.5%, largely propelled by mortgages (+12.5%) and auto financing (+13.0%). Loans growth in Indonesia moderated to 15.3% annualised growth vs FY11’s 28% growth but this was well compensated by a sharp q-o-q improvement in NIM which increased 29bps to 5.51% largely owing to BII’s strategy of more selective growth to focus on profitability rather than volume, given the current macroeconomic  uncertainties and potential asset quality concerns in Indonesia.

Source: OSK