Highlights

Malayan Banking Berhad - Maybank Indonesia: Hit By Provisions

Date: 02/05/2019

Source  :  PUBLIC BANK
Stock  :  MAYBANK       Price Target  :  9.90      |      Price Call  :  HOLD
        Last Price  :  8.94      |      Upside/Downside  :  +0.96 (10.74%)
 


The Group’s Indonesian subsidiary reported a weaker 1QFY19 net profit of Rp414.9bn, hit by higher provisions for certain business loans amid a challenging operating environment. On an encouraging note, operating income growth (+6.2% YoY) for the quarter was healthy as year-to-date loans growth hit +10.9% YoY. While the overall Group has had admirable levels of success in some of its key growth initiatives, we reckon near-term earnings potential may be hampered by margin compressions and asset quality challenges. Our Neutral call and dividend discount-derived target price of RM9.90 are unchanged. Forward price-earnings valuations vis-à-vis the broader market is attractive nonetheless.

  • Net interest income is 7.7% higher YoY to Rp2.0tln. With the bank managing to maintain pricing discipline as well as improve on its operational efficiencies, net interest margin for the quarter remained at a steady 4.8% as pressures were contained.
  • Loans growth is a robust +10.9% YoY, driven by a +29.8% growth in its Global Banking business, as loans to State-Owned Enterprises and top tier corporates saw greater penetration. The bank’s liquidity position remains healthy nonetheless, with deposit growth (+6.2% YoY) keeping pace somewhat. Loan-to-Deposit Ratio is 90.1% while Liquidity Coverage Ratio is 145.8%, the latter well above the regulatory minimum of 100%.
  • Asset quality saw some deterioration on a sequential basis, with gross NPL level of 2.9% 31bps higher than the immediate preceding quarter’s 2.59%, a direct consequence of the challenging operating environment. With its current conservative stance over its loan quality, the bank has increased its loss loan provisions by 52.2% to Rp400.5bn as at March 2019.
  • Recap of 2019 goals. Key strategic focus areas are (1) maintaining stable liquidity via promoting selected funding programmes (ie. products for operational and savings accounts while continuing to maintain deposits), (2) selective loans growth, (3) sustaining growth in Shariah banking, (4) digital transformation, (5) optimizing branch network and raising productivity, and (6) strategic cost management programs. While still early days in terms of assessing the bank’s successes (or lack thereof) in achieving all of its strategic initiatives, it is nonetheless on the right trajectory with its liquidity, Shariah banking and loans growth goals.

Source: PublicInvest Research - 2 May 2019

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