Brokers’ take: UOBKH downgrades Maybank to ‘hold’ on limited price upside

UOB Kay Hian downgraded its call on Malayan Banking (Maybank) to “hold” as current valuations are likely fair and its share price may have limited upside potential.

Analyst Keith Wee, which maintained his target price of RM9.45 on the counter, noted that Maybank’s share price has performed favourably to trade 0.5 standard deviations below its historical 5-year average book value.

He expects the market is unlikely to re-rate the valuations of banking stocks meaningfully above their average price-to-book value ratios in the near term, given the prospects of slowing macroeconomic growth.

Shares of Maybank were trading flat at RM8.98 as at 2.44 pm on Friday (May 27), on the Kuala Lumpur Stock Exchange.

Maybank on Thursday reported a net profit of RM2.1 billion (S$656.6 million) for its first quarter of FY2022, 14.5 per cent lower than the same period last year and 0.6 per cent lower than the previous quarter.

Wee noted that the bank’s lower-than-expected net credit cost and operating expenditure in the period was offset by weaker-than-expected fee income.

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The UOBKH analyst has taken a “conservative view” and cut his fee income trend estimates to a contraction of 4 per cent on year, from a growth of 2 per cent, as he expects weaker brokerage and wealth management income and some impact from rising inflation on credit cards and other consumption-related fee income.

In contrast, CGS-CIMB maintained its “add” call on Maybank as it expects the bank’s loan loss provisioning will improve in FY2022, while its net interest margin should rise after the overnight policy rate upcycle commences. Earlier in May, Malaysia’s central bank raised its overnight policy rate by 25 basis points.

CGS-CIMB analyst Winson Ng also lifted his target price on the counter to RM10 from RM9.80, after raising his earnings per share estimates by 0.7 per cent in FY2022 and 1 per cent each in FY2023 and FY2024.

Ng said the overnight policy rate hike should help to cushion some negative impact from a lacklustre investment income amid rising interest rates, as well as the Cukai Makmur tax measure in the second quarter of FY2022.