No surprises as Maybank Indonesia’s 4Q18 earnings rose 24% QoQ, mainly on positive Jaws and lower loan loss provision. That said, we saw loans growth losing momentum but the drop in deposits has halted. However, LDR remains high and may continue to put pressure on NIM this year. On a brighter note, asset quality improved, serving as an offset. All in, no change to our forecasts. We believe the risk-reward profile of the stock is balanced, seeing that it is trading close to its 5-year average P/B and P/E. Maintain HOLD with GGM-TP of RM10.20, based on 1.39x 2019 P/B.

Met estimates. Maybank Indonesia (79%-owned subsidiary) reported 4Q18 earnings of IDR698b (+24% QoQ, +97% YoY), which took 2018 net profit to IDR2,195b (+22% YoY). This met estimates, at 104-105% of ours and consensus full-year forecasts.

QoQ. The 24% earnings rise was due to positive Jaws whereby total income (+8%) outgrew overhead expenses (+3%) coupled with lower allowance for impaired loans (- 6%). We noticed non-interest income (NOII) was up 54% thanks to forex gain (jumped 4x) and higher overall fee income (+48%). However, we saw net interest margin (NIM) contracted 11bp to 5.13% during the period.

YoY. Lower loan loss provision (-60%) was the main reason that led to a 97% rise in bottom-line. Although NOII was up 28%, boosted by primarily by fee income (+27%), it was entirely erased by the acceleration in opex (+19%), owing to higher general and administrative cost (+26%).

YTD. 2018 ended with earnings up 22% as growth was supported by lower provision for bad loans (-39%). That said, pre-provision profit fell 6% on the back of poor NOII showing (-17%) as it was negatively affected by lower mark-to-market (MTM) and forex losses. Also, this was amplified by the 4% increase in opex.

Other key trends. Loans growth slowed down for the 1st time in 3 quarters (+4.5% YoY) but the decline in deposits has halted (-0.2% YoY) causing loan-to-deposit ratio (LDR) to fall to 108% (-10ppt sequentially). Nevertheless, asset quality continued to improve as gross impaired loans (GIL) ratio fell 20bp QoQ to 2.53%.

Outlook. We see reduced rate hike risk in Indonesia this year given a more dovish Fed stance. Still, we think NIM may dwindle considering LDR is high, prompting it to be more aggressive in shoring up deposits or turn to expensive funding. Besides, the upcoming general election in April creates business uncertainty, in our view.

Forecast. Unchanged as Maybank Indonesia’s 4Q18 results were within estimates. It contributes c.7-8% to group’s PBT, which is not overly substantial.

Retain HOLD and GGM-TP of RM10.20, based on 1.39x 2019 P/B with assumptions of 10.4% ROE, 8.3% COE and 3.0% LTG. This is in line with its 5-year mean of 1.33x but ahead of the sector’s 1.16x. The premium is reasonable considering its regional exposure and leadership in the Malaysia’s banking scene. Furthermore, Maybank is a major player in the global Islamic banking space. Also, it offers superior yield of c.6% (2ppt higher than peers). However, the potential top up in provisions for its Hyflux exposure stays as a lingering concern. For now, the risk-reward profile for the stock appears to be balanced as it is trading close to its 5-year average P/B and P/E.

Source: Hong Leong Investment Bank Research - 15 Feb 2019