Deviations

• Results in line... Maybank reported 2Q17 earnings of RM1.66bn (+43% YoY, -2.6% QoQ), lifting 1H17 earnings to RM3.36bn (+29.9% YoY). The results match HLIB and consensus estimates, making up 49.2% and 47.5% respectively.

Deviations

• None.

Dividend

• Announced first interim dividend of 23 sen, translating into 22% payout ratio.

Highlights

• QoQ… 2Q17 net profit fell to RM1.66bn (-2.6%). Higher NOII by +20.4% was dragged by a surge in loan-loss- provision (LLP) by +53% to -RM830m. NOII accelerated due to higher investment & trading income (+29%). LLP was linked with O&G impairment in Singapore and Malaysia.
• YoY… 2Q17 net profit soared by +43% on the back from a jump in operating income (+12.8% YoY) and decline in LLP (-15.4%) This was, however, offset by higher opex of +6.5%.
• 1H17… Net profit of RM3.36bn (+29.9% YoY) was lifted by both NII (+8.8% YoY) and NOII (+5.5% YoY) as well as lower LLP (-25.7% YoY).
• Loans… Loan growth slowed to +6.4% YoY, led by all key markets namely Malaysia (+6.4% YoY), Singapore (+10% YoY) and Indonesia (+8% YoY).
• Deposits… Deposits recovered to grow by +1% YoY, driven by strong growth in CASA (+10% YoY) which well covered the decline in fixed deposits (-3.2% YoY). LDR improved to 93.8% due to slower loan growth, whilst Malaysia and Singapore LDR remained comfortable at 90.9% and 91.4% as opposed to Indonesia LDR at 102.4%.
• Asset quality… Absolute NPL rose by 15% YoY driving GIL higher to 2.4%, contributed by all other markets except Malaysia. R&R account rose to 0.37% from 0.33% due classification of several accounts from non-performing.
• Credit cost… Credit cost spiked to 57bps due vs. 45bps in 1Q17. Management guided that it may overshoot the 57bps guidance owing to the O&G accounts in both Malaysia and Singapore. We project Maybank’s credit cost to hit 60bps in FY17.

Risks

• Unexpected jump in impaired loans, slower than expected loan growth and significant slowdown in capital market.

Forecasts

• We raise our FY17 and FY18 forecast by 2% respectively forecast due to higher assumption of NOII.

Rating

BUY (↔)

• We continue to like Maybank given its well-balanced exposure in both retail and corporate segments. Maybank is the front runner beneficiary and the best proxy to ride on a recovery in economic growth.

Valuation

• Maintain BUY and raise our TP to RM10.70 (from RM9.90) as we roll over our valuation into FY18. Our TP is derived from GGM model based on i) ROE 10% ii) WACC of 8.5%.

Source: Hong Leong Investment Bank Research - 5 Sep 2017