Maybank - 2018: Above Expectations

Date: 27/02/2019

Source  :  Affin Hwang Capital
Stock  :  MAYBANK       Price Target  :  11.50      |      Price Call  :  BUY
        Last Price  :  8.92      |      Upside/Downside  :  +2.58 (28.92%)

Maybank reported a 4Q18 net profit of RM2.3bn (+9.1% yoy; +19% qoq), while 2018 net profit of RM8.1bn (+7.9% yoy) was an all-time high, driven by lower impaired loan allowances and writebacks. 2018 results beat our expectations (due to sharply lower credit cost of 32bps for 2018 vs. our conservative assumption of 51 bps) though within consensus. At the operating level, net income was up by a marginal 1.7% yoy as a result of a moderation in the non-fund based income while fund-based income growth remains healthy (+3.1% yoy), with NIM compression lesser than expected. Maybank had proposed a final dividend of 32 sen, while 2018 DPS amounted to 57 sen (2017: 55 sen). For 2019, management has highlighted some challenges for growth on NIM (due to on-going deposit competition) and global uncertainties caused by the on-going trade tensions. Maintain BUY, PT adjusted to RM11.50 (1.65x 2019E P/BV).

Above Affin’s Expectations; Recoveries Drive Lower Credit Cost

Maybank ended the year 2018 with a net profit of RM8.1bn, up 7.9% yoy. Meanwhile 4Q18 itself was a boost for the group, as net profit rose 9.1% yoy and 19% qoq driven by sharply lower allowances (as asset quality improves) while seeing healthy expansion of fund-based income (+7.5% yoy; +4.8% qoq) as NIM recovered 8bps on qoq basis to 2.38%. Maybank’s 2018 NIM contracted less than expected (down 3bps yoy to 2.33% vs. our projection of 2.28%) on the back of liquidity management initiatives in 2H18 (as the LCR declined to 132.4% in 4Q18 from the peak of 153.3% in Mar18). For 2018, operating expense declined by 1% yoy (resulting in a CIR of 47.4% vs. 48.6% in 2018). As asset quality improved towards 4Q18, the overall credit cost level edged down to 32bps (2018) from 40bps (2017).

2019 ROE Guidance Remain Optimistic at Circa 11%

Management has conveyed a few KPIs for 2019, i.e. ROE at ~11%, a 3- 5bps NIM compression, net credit cost at 40bps cost-to-income ratio at 47% and loan growth in-line with the GDP growth at each home market. Given Maybank’s established market leadership, its earnings in 2019E-21E should not see a sharp slowdown.

Reiterate BUY; PT Adjusted to RM11.50 (at From RM11.20

Maintain BUY. Our Price Target has been adjusted from RM11.20 (based on a 2019E P/BV target of 1.6x) to RM11.50 (based on a 1.66x 2019E P/BV target, with cost of equity at 8.2% and 2019E ROE at 10.3%) as we made some minor housekeeping adjustments on our forecasts (2019: loan growth 3.4%, net credit cost 47bps, CIR 45.4%, NIM 2.3%). Downside risks: rise in credit cost; subdued loan growth.

Source: Affin Hwang Research - 27 Feb 2019

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