Brokers' take: UOBKH upgrades Maybank to 'buy' on faster-than-expected recovery in provisions

In a regional morning note on Friday (Nov 26), analyst Keith Wee said the revised target price of RM9.20 is based on 1.14 times Maybank's FY2022/23 price-to-book estimates and a 9.7 per cent return on equity assumption.

It implies a 0.5 standard deviation below the historical average return of 1.2 times.

In making his recommendation, Wee also looked at Maybank's current valuations of 1 standard deviation below a 5-year historical mean price-to-book value and its attractive dividend yield of 7.1 per cent, which further reinforced his stand to upgrade.

Commenting on its latest financial results, Wee said the bank's net profit was “marginally above expectations” due to lower-than-expected credit cost.

Excluding RM110 million (S$35.5 million) in one-off modification losses, Maybank reported a core net profit of RM1.8 billion for the quarter, bringing its core earnings in the first 9 months of the financial year to RM6.15 billion, up 16.9 per cent from the same period in the previous year.

This represents 81 per cent of UOBKH's full-year forecast for the bank.

That said, Wee pointed out that the lower-than-expected credit cost was partially negated by weaker-than-expected investment and trading income due to a spike in mark-to-market losses.

Meanwhile, the analyst noted that the bank's management had indicated a possibility that credit cost for 2021 could come in lower than its current guidance of 70 to 80 basis points, charting a faster-than-expected recovery especially with the improving economy.

With that, he has cut the bank's FY2021 to FY2023 group net credit cost assumptions from 85, 65 and 55 basis points (bps) to 70, 55 and 50 bps respectively, versus a pre-pandemic average of 40 bps.

While he has raised the bank's FY2021 and FY2023 earnings estimates by 1 per cent and 2 per cent respectively, he cut FY2022's estimates by 9.8 per cent to factor in the impact of Cukai Makmur, a recently announced prosperity tax under Malaysia's Budget 2022.

Wee added that loans under targeted assistance within Malaysia inched up with more broad-based opt-in loans moratorium that took effect from Jul 21, but the situation is expected to improve with the improving economic outlook.

Shares of Maybank were trading at RM8.08, down 3 sen or 0.4 per cent, on the Bursa as at 12.29 pm on Friday (Nov 26).