Maybank results were within expectations, with 1Q18 net profit of RM1.87bn (+9.9 YoY, -12.2% QoQ) making up 23.1% and 22.8% of ours and consensus full year forecasts. Fund-based income rose strongly from net earned insurance premium and declining overhead expenses was mitigated by slower growth in fund based income despite expansion in NIM. Loan growth was flat, witnessed of moderation in key market which was offset by higher growth in Malaysia. Deposits growth disappointed due to slower CASA growth. Gross impaired loan continued to see an uptick due to adoption of MFRS9 accounting standards. We reiterate our BUY rating on Maybank with GGM TP of RM11.00, derived from (i) COE of 10.9% and (ii) WACC of 8.6%.

Results in line. Maybank reported the MFRS9 accounting standard for the first time. Maybank’s 1Q18 net profit of RM1.87bn (+9.9 YoY, -12.2% QoQ) met expectations, making up 23.1% and 22.8% of consensus and our full-year forecasts. No dividend was declared during the quarter.

QoQ. 1Q18 net profit declined by 12.2% to RM1.87bn due to seasonal effect. Lower expenses (-4.9%) was negated by lower fee-based income (-16.5%) and higher loan loss provision (+154.9%) as the Group moved to new accounting standard (MFRS 9 which based on expected loss model vs. incurred loss model under old regime of FRS139.

YoY. 1Q18 net profit of RM1.87bn (+9.9%) was underpinned by higher fund-based income and lower overhead expenses, but partly offset by surging loan loss provision. Fund-based income was slightly higher (by 2.8%) despite a healthy NIM uptick (by 9bps). Fee-based income, on the other hand, was driven by higher net earned insurance premium from life and family business which more than offset the higher net insurance benefits and claims.

Loans. Management’s careful stance has resulted loans growing at softer pace of 1.5% YoY and fell 0.1% QoQ in view of GE14 results. Malaysia loan growth of +6.7% YoY cushioned the overall weaknesses in other markets. Singapore loan growth slid - 1.6%YoY whilst Indonesia eased by -13.5% YoY. Management reiterated the absence of loan growth guidance in FY18 in view of various uncertain issues.

Deposits. Liquidity improving to 92.7% from 93.7% in 4Q18, contributed by all markets. Malaysia liquidity improved to 85.8% vs. 89.8% as at end Dec-17 due to careful stance adopted. Total deposits weakened marginally, by 0.1% QoQ to RM493.4bn, weighed by CASA deposits. CASA composition reduced to 35.3% vs. 37.33 at end-Dec17. Despite disappointed deposits growth, NIM improved 9bps QoQ to 2.39%, benefiting from rate hike in its key markets.

Asset quality. Maybank continued to see an uptick in its 1Q18 gross impaired loan (GIL) ratio, from 2.34% (4Q17) to 2.37% due to adoption of new accounting standard (MFRS 9). Mortgage loan was front runner to get a hit from this, as NPL rose 19%QoQ. Notwithstanding, Malaysia NPL accelerated by 16% QoQ that frove GIL ratio to 2.24% from 1.94% at end-2017.

Forecast. We leave our forecasts unchanged.

Maintain BUY. Unchanged TP: RM11.00. The positive surprise from 1Q18 was better-than-expected NIM. While there was movement upwards in impaired loan, we think the new accounting standard was the culprit. Our TP of RM11.00 is derived by (based on COE 10.9% and WACC of 8.6%).

Source: Hong Leong Investment Bank Research - 30 May 2018