Outperform Reiterated on Maybank

Date: 20/02/2019

Stock  :  MAYBANK       Price Target  :  10.90      |      Price Call  :  BUY
        Last Price  :  8.94      |      Upside/Downside  :  +1.96 (21.92%)

Maybank Indonesia (MI) held a result briefing for its fourth quarter (4QFY18) last Monday. Following that, Macquarie Equities Research (MQ Research) wrote a report (19 Feb) on what this latest update means for Malayan Banking (Maybank), and reiterates its Outperform rating with a target price of RM10.90.


  • MI, the 79%-owned Indonesian banking subsidiary of Maybank, held its 4QFY18 result briefing yesterday (Monday, 18 February 2018). Recall that in FY17, MI contributed 8% and 9% of Maybank group’s loan book and profit before tax (PBT), respectively.
  • Key takeaways: while MI’s headline FY18 earnings were a record high, this was achieved primarily via a sharp decline in net credit cost (-39% year-on-year (YoY)), as mirrored by improving asset quality ratios. Pre-provisioning operating profit (PPOP) contracted 6.4% YoY, with negative jaws underscored by diverging operating income (-0.6% YoY) vs. opex (+4% YoY). Like peer CIMB-Niaga, the priority will remain on asset quality containment and internally-driven franchise upgrades over elections-impacted 1H19, with growth focus to return thereafter.
  • Modest positive read-through to Maybank: With aforementioned negative jaws exaggerated by one-off disposal gains in FY17 and MI’s relatively small earnings contribution to the Maybank group, earnings stability and improved asset quality are the more important metrics (vs. growth) re not distracting group management resources from tactical and strategic priorities re the bigger Malaysia/Singapore operations (collectively >80% of group loans and PBT).


  • Record earnings: MI reported 4Q FY18 earnings of Rp697bn (+24% QoQ), taking FY18 earnings to Rp2.2tn (+22%), a record high. Notwithstanding an Rp2bn rights issue in June 2018, MI reported much improved return on asset (ROA) and return on equity (ROE), at 1.74% and 10.2%, respectively (vs. FY17’s 1.48% and 9.9%, respectively).
  • Operating income flat: net interest income grew 5.2% YoY, underpinned by 6.3% YoY loan growth (led by core business/ small-medium enterprise (SME) segments while corporate growth was capped by repayments) and a 7bps YoY improvement in net interest margin (NIM), to 5.24%, supported by shedding of more expensive deposits (though current account and savings account (CASA) ratio eased, to 38% vs. FY17’s 40%). Headline 17% YoY fall in non-interest income was exaggerated by disposal gains in FY17 – business as usual (BAU) contraction was just 2.6%.
  • Cost lines mixed: operating expenses grew a relatively contained 4.0% YoY but underlying cost-income ratio (CIR) at 58% compares unfavourably to peer CIMB-Niaga’s 3QFY18 YTD CIR of c.50%. Asset quality ratios showed broad improvement, with gross non-performing loans (NPL) ratio at 2.59% (3Q: 2.73%) and related loan loss coverage at 70% (FY17: 61%; >140% if including collateral), while credit cost declined sharply, to 102bps (2017: 180bp). Capital ratios also improved, with Tier 1 capital ratio rising to 16.9% (FY17: 14.6%) post-Rp2tn rights issue.
  • Guidance – navigating carefully: management is guiding FY19 loan growth to accelerate to a sector-comparable 9-10%, supported by global banking and mortgage model recalibration. Higher interest rates (25-50bps) and election-related liquidity buffers mean NIM is expected to decline 15-20bps. CIR is expected to remain sluggish as digitalisation investments (M2U, website) while asset quality ratios and credit costs are expected to improve incrementally.

Action and Recommendation

  • MQ Research maintains their Outperform rating for Maybank, with unchanged target price of RM10.90. Concerns re credit exposure to Hyflux/Sapura Energy are overdone, while a diversified Maybank looks better positioned than Malaysia/retail-centric big cap peer Public Bank in delivering sustained growth, and with more attractive valuation-yield dynamic.

Source: Macquarie Research - 20 Feb 2019

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