As we approach the tail end of 2024, with Christmas festivals and a new US President wrapping up a bizarre yet bullish 2024, Malaysian investors might have their eyes peeled on the local banks’s 3Q results.
With supposedly one of the best-performing currencies, and much impetus for growth, it is a surprise even to me that the Malaysian stock market has attracted more attention and fanfare more than SGX.
While all 3 of Singapore’s listed banks continue to breach all-time highs, how did the big 3 of Malaysian banks – Malayan Banking Berhad (KLSE: MBB), Public Bank Berhad (KLSE: PBB), and CIMB Group Holdings Berhad (KLSE: CIMB) fare, and which one is the better buy?
Revenue trend and constituents
Looking at the big picture first, which is total revenue, all 3 banks grew their total revenue at a relatively similar pace for Q3’24. CIMB outpaces its peers by a mere +0.3 ppt.
But on a 9M’24 basis, Maybank comes in as a clear winner, growing by almost +11% YoY, with CIMB achieving +8.53% YoY and with PBB at +5.45%.
Although MBB’s net interest income contracted while the other 2 banks have grew, MBB managed to claw back through the growth of its non-interest income revenue stream, which includes income from its Islamic Banking Scheme operations, Insurance/takaful service results and other operating income.
With interest income constituting about 40% of MBB’s revenue, it is relatively less impacted by interest rate changes – whether favourably or otherwise. PBB on the other hand, derives close to 70% of its revenue from interest-sensitive lending business, and would see its operations more exposed to Overnight Policy Rate changes.
Gotta give it to MBB for the top line growth win against its peers.
Cost & expenses control
There are multiple perspective from seeing all 3 banks’ overheads and also its cost-to-income ratio.
Cost-to-income ratio wise, MBB managed to reduce it by -1.91ppt YoY to 46.93% for Q3’24 and -1.71ppt YoY to 46.22% for 9M’24. CIMB’s cost-to-income ratio also reduced, albeit by just -0.3-0.4ppt for Q3’24 and 9M’24. PBB on the other hand, saw its cost-to-income ratio increasing rather than increasing, +0.43ppt YoY for Q3’24 and +1.2ppt YoY for 9M’24.
CIMB stands out as the better-performing bank in this aspect, achieving better top line growth that outpaces its overheads expansion. Thus, its profit before expected credit losses is the highest amongst its peers at +9.05% YoY and +9.27% YoY for Q3’24 and 9M’24 respectively. MBB’s profit before allowance for losses is also up by ~7%.
While PBB’s Q3’24 profit before credit losses is comparable to MBB’s, on a trailing 9M’24 basis, it is up by only +3.48% YoY.
With an overall growth in total revenue coupled with shrewd cost measures, CIMB steals this one by reporting better profit growth before credit losses.
Prudence in dishing out credit
Another important measure in analysing banks is their prudence in providing credit. Increasing loans does translate to higher loan and interest income, but that also expose banks to credit default risks. Thus it is also important to gauge how much a bank books its expected credit losses and its gross impaired loan ratio (GIL).
There are many ways to decipher and analyse this. The most straightforward is just purely looking at the gross impaired loan ratio, where the lowest ratio means the most prudent bank.
PBB has one of the lowest GIL I have ever came across. It is even lower than the GIL’s of Singapore’s banks.
The other side of the coin, is that even though PBB might have the lowest GIL, that alone does not make it the bank with the highest growth in its operating profit for 9M’24. MBB and CIMB, with better top line growth but with way higher GIL and higher allowances for credit losses, still reported better growth in operating profit before taxation and zakat.
EPS growth and Valuation
The last aspects to check will be the EPS and the valuation, from a dividend yield, price to book ratio and P/E ratio perspective.
MBB trades at the highest dividend yield versus PBB and CIMB at close to 6% trailing yield. P/E wise, it’s around 12x P/E, slightly pricier than PBB and CIMB. CIMB, due to higher credit loss allowances, trades at a slightly cheaper P/B ratio, while PBB commands a P/B ratio of close to 1.6x, together with a respectable dividend yield of 4.5%.
In summary, MBB’s valuation looks more attractive than its peers in Malaysia.
I also took the initiative to compare the results against Singapore’s Terrific Trio – DBS Group Holdings Ltd (SGX: D05), United Overseas Bank Ltd (SGX: U11) & Overseas-Chinese Banking Corporation Ltd (SGX: O39).
Apart from UOB, DBS and OCBC’s EPS growth seems to outpace MBB and PBB. Only CIMB registered an EPS growth that is well above 10% for 9M’24.
Dividend yield wise, it is surprising to see SG banks trading at better dividend yields even after the YTD rally, and also at far cheaper P/B and P/E ratios.
My verdict
All 3 MY and 3 SG banks have their respective pros and cons. However, if we were to just look at it purely based on prospects, tailwind and valuation, SG banks bring more to the table from a qualitative and long-term investing horizon and point of view.
These 3 banks should fare well regardless of what happens in the future, or even rebound and recover in spite of the future black swan events.
If you are adventurous and seek only for the best companies for your portfolio, the SG banks are hands down better than MY banks. However, if you are comfortable with just investing within Malaysian, the 3 banks are decent as well.
Looking Beyond
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