Maybank’s 1H18 net profit to RM3.83bn (+13.9%), came in within expectations, accounting for 47% of our and consensus full-year forecast. Proposed higher dividend of 25 sen. Loan recovered by 4.6% YoY attributed to all key markets and segment. Deposits advanced faster by 7.6% YoY, driving LDR to improve by 270bps YoY to 96.5%. No change to our forecasts, and GGM-derived TP of RM10.00, (COE 11.3% and WACC of 8.8%). Maintain HOLD rating.

Results in line. 2Q18 net profit of RM1.95bn (QoQ: +4.7%; YoY: +18.1%) lifted 1H18 net profit to RM3.83bn (+13.9%). The results came in within expectations, accounting for 47% of our and consensus full-year forecast.

Dividend. Proposed higher dividend of 25 sen (vs. 23 sen in 1H17), with a higher cash component of 15 sen vs 5 sen cash in 1H17, translating into 71% payout.

QoQ. 2Q18 net profit was stronger by 4.7% as higher net impairment loss (+12.3%) was more than offset by a higher fee based income (+5.1%) and lower overhead expenses. Fee based income was mainly due to higher net earned insurance. Fund based income, on the other hand, was softer by 2%, caused by NIM compression.

YoY. Net profit advanced by +11.7%, mainly on the back of lower net impairment loss (-32.7%) amidst stable operating income (+1%).

YTD. Net profit advanced by 13.9% to RM3.83bn, mainly driven by lower impairment losses and stable operating income (+3%). Operating income was led by both net fund based income (+1.6% YoY) and fee based income (7.4% YoY).

Loan growth. Loan grew by 4.6% YoY attributed to all key markets and segment. The growth was rather mixed between retail and corporate against 1Q18 which was dampened by corporate segment. In Malaysia, corporate loan rebounded by +4.6% YoY while consumer maintained stable growth of 6.6%. Both Indonesia and Singapore recovered from weak loan growth, rising by 6.6% YoY and 2.7 YoY.

Deposits. Total deposits advanced faster by 7.6% YoY, this drove LDR to improve by 2.7%-pts YoY to 96.5%, attributed to all markets. Total deposits growth was led by a 10% growth in fixed deposits, which has in turn resulted in CASA declining to 35.1%% (from 36.8% last year).

Asset quality. Although the impairment on Hyflux account (amounted to S$602.4m) has resulted in GIL in Singapore operations increasing to 3.6% (from 2.3% in 1H17), group GIL ratio declined to 2.53% (from 2.64% in 1H17), with net credit cost declining to 44bps (vs. 57bps in 1H17) mainly on the back of higher recoveries.

Forecast. We Leave Our Forecasts Unchanged.

Maintain HOLD, TP: RM10.00. Despite 1H18 credit charge posted in line with management guidance, we believe that credit cost in the 2H18 will accelerate on the high side of management guidance as we believe Maybank likely to book lower recoveries amid weakness in ex- Malaysia asset quality. We maintain our HOLD rating on Maybank with unchanged TP of RM10.00 based on GGM of (i) COE 11.3% and (ii) WACC of 8.8%).

Source: Hong Leong Investment Bank Research - 3 Sept 2018