Maybank - 9M18 Results In-line; a More Challenging 4Q18

Date: 30/11/2018

Source  :  Affin Hwang Capital
Stock  :  MAYBANK       Price Target  :  11.20      |      Price Call  :  BUY
        Last Price  :  8.96      |      Upside/Downside  :  +2.24 (25.00%)

Maybank reported a 3Q18 net profit of RM1.96bn (-3.5% yoy; -0.1% qoq), and 9M18 net earnings of RM5.79bn (+7.4% yoy). 9M18 results were in-line with our and consensus expectations. We keep our FY18E-20E earnings forecasts unchanged, while for 4Q18 we anticipate a potential moderation in earnings due to rising NIM pressure. There were not many surprises in 3Q18 – overheads were flat qoq and 6% lower yoy, impairment loan allowances eased qoq and yoy while asset quality has been stable, with the GIL ratio at 2.65% in 3Q18. Management reiterated flat or marginal NIM compression guidance (revised since 2Q18) while maintaining its CIR and ROE guidance of 48% and 11%. Maintain BUY and our PT of RM11.20 (based on a 1.6x 2019E P/BV).

Within Affin’s Expectations; Healthy Pre-provision Profit Growth

Maybank’s 9M18 net profit stood at RM5.78bn, up 7.4% yoy underpinned by a steady 3Q18 whereby net profit was flat qoq at RM1.96bn. For the 9M18 period, PPOP continued to expand by 4.6% yoy as overheads declined (-3.6% yoy), insurance operating profits were up (RM538m) and fund-based income was sustained (+1.6% yoy). This was, however, offset by weaker 9M18 non-interest income due to lower realized investment gains. Net credit cost for 9M18 of 41bps (provisions down 14.2% yoy) declined from 48bps in 9M17. There are no provisions for Hyflux Limited in the current quarter as the company is currently working out a scheme with a potential investor, which is expected to be finalized by 1Q19. Recently, the Singapore High Court has granted Hyflux an extension of its debt moratorium period until 30 April 2019.

2018 Net Credit Cost at 40-45bps; NIM Flat or Marginal Compression

Management has reversed its guidance for 2018E net credit cost from >45bps to 40-45bps as asset quality is expected to remain steady for 2018 (3Q18 GIL at 2.65%). Meanwhile, management continued to guide a stable or marginal decline in 2018’s NIM (9M18 at 2.32%) amidst initiatives to maintain pricing discipline and normalize the liquidity coverage ratio (130.5%). We do anticipate a more challenging environment in 4Q18, as industry deposit competition remains intense.

Reiterate BUY; PT Unchanged at RM11.20 Based on 1.6x P/BV

Maintain BUY. Our Price Target of RM11.20 is based on a 2019E P/BV target of 1.6x (with cost of equity at 8.2% and 2019E ROE at 10%). Maybank is trading at a 1.35x 2019E P/BV vs. its past 10-year historical average of 1.48x. Downside risks: rise in credit cost; subdued loan growth.

Source: Affin Hwang Research - 30 Nov 2018

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