• We maintain our BUY call on Maybank with an unchanged FV of RM10.70/share. This is based on an ROE of 11.0% leading to an unchanged FY19 P/BV of 1.5x. No changes to our estimates.

• Management of Maybank’s Indonesian subsidiary, Maybank Indonesia (MI) provided a briefing on its recently announced 4QFY18 results. MI recorded an improved net profit of Rp697bil (+23.5%QoQ) which led to a full FY18 net profit of Rp2.19tril (+21.6%YoY). The improved cumulative earnings were supported by higher net interest income (+5.2%YoY) and lower provisions (-38.7%YoY) partially offset by lower non-interest income (NOII) of 17.0%YoY. The decline in NOII was largely due to a non-repeat of a one-off income of Rp401bil from the sale of shares in FY17. The increase in market volatility, the US monetary tightening and Fed rate hike have lowered MI’s income from trading of bonds.

• FY18 NIM rose 7bps YoY to 5.24% contributed largely by lower interest expense. For FY19, management has guided for MI’s NIMs to contract by 15 to 20bps owing to the potential built-up of excess liquidity moving towards the general election. The group has set its priorities in maintaining a stable liquidity for 2019. It is focused in driving CASA through community programs, value chain financings, capturing of customers’ operating accounts and promoting attractive funding programs to attract deposits in Indonesia. Management is expecting another 50bps rate hike in Indonesia due to potentially further increase in the Fed rate in 2019. This will be substantially lower than the quantum of rate increased cumulatively in 2018. Nevertheless, it remains to be seen if the subsidiary is able to fully pass it on to the lending rates of borrowers as Indonesia’s economic growth in 2019 is not expected to improve significantly over 2018.

• The Indonesian subsidiary has guided for its loans to grow by 9.0–10.0% for FY19 with selective growth in all segments. Recall in FY18, it registered a loan growth of 6.3%YoY. FY18 loan growth was underpinned by the growth in CFS non-retail loans (+10.9%YoY) driven by business banking and SME loans as well as CFS loans (+3.1%YoY) from auto loans and credit cards. We understand that mortgage loans have contracted due to the recalibration of its business model, and it is expected to pick up pace after the completion of the initiative. Meanwhile, global banking loans expanded modestly by 2.9%YoY impacted by several corporate loan repayments.

• Customer deposits shrank by 3.7%YoY in 2018 due to the tighter liquidity conditions in the market. CASA ratio slipped to 38.1% in 4QFY18 vs. 41.6% in 3QFY18. LCR of 118.6% was above the minimum regulatory requirement of 100.0%. MI’s LDR and modified LDR improved to 10.98% and 8.61% respectively in 4QFY18 compared to the preceding quarter. In FY19, MI is targeting for a deposit growth of 11.0–12.0%.

• With active restructuring and sale of corporate NPLs, asset quality for MI has improved. GIL ratio and gross NPL ratio of MI declined to 3.10% and 2.59% respectively in 4QFY18 (3QFY18: 3.35% and 2.73%). Credit cost for FY18 stood at 1.30% vs. 1.69% in FY17. Management has guided a credit cost of 0.95% for FY19. Loan loss cover based on impaired loans and NPLs improved to 69.8% and 53.0% respectively. Including the collateral coverage, the ratios will be higher at 144.1% and 128.9%.

• Capital position of MI strengthened with total CAR of 19.04% in FY19 vs. 17.53% in FY17. In June 2018, MI exercised a rights issue of Rp2.0tril.

• In FY19, MI is targeting for a double-digit growth in ROE. We understand that MI will continue to focus on cost management, digital transformation, optimizing of branches and improving its productivity.

Source: AmInvest Research - 19 Feb 2019