MyState: Lowering 2024 Targets as Margins Slide, but Improvement Expected as Major Banks Reprice

We reduce our fair value estimate for MyState by 4% to AUD 4.80 per share. As a small bank focused on home lending, the no-moat bank is feeling the pressure of intense competition among the four major banks and Macquarie Bank, weak credit growth, and elevated refinance activity. With net interest margin being squeezed by higher term deposit pricing and discounted mortgage rates, management has decided to temper loan growth. MyState now expects to grow loans in line with the market in fiscal 2024, compared with prior guidance of growing two times faster. We now forecast loan growth of around 4% in fiscal 2024, down from 7% previously. NIM is guided to be 1.45% to 1.49% in first half 2024, down from 1.55% in the second half of fiscal 2023. MyState is highly dependent on the mortgage broker channel for loans, and in a refinance market, price is likely taking precedence over the speed of approval. So as large banks offer lower rates and cashbacks despite a slower approval process, MyState is having to compete. Despite containing cost growth so far in fiscal 2024, lower NIM and loan balance results in EPS guidance being lowered 7.5% to 12.5%.