Yesterday’s conference call with Maybank Indonesia was a non-event, in our opinion. We find both its 2019 loans and deposits growth guidance of 9-10% and 11-12% respectively too aggressive. Besides, NIM is expected to narrow but asset quality is seen to be steady. Overall, our forecasts are unchanged. We still believe the risk-reward profile of the stock is balanced as 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.

The management of Maybank Indonesia (79%-owned subsidiary) held a conference call yesterday to share more details on its recent 4Q18 results and 2019’s outlook.

Loans growth. Although 4Q18 loans growth tapered for the 1st time in 3 quarters (+6.3% YoY), management is guiding a quicker rise of 9-10% in 2019. For industry, it is anticipated to increase at a more rapid momentum of 10-11%. These were formed on the expectation that Indonesian’s 2019 GDP of 5.14% (2018: 5.17%) and inflation of 3.44% (2018: 3.20%). However, we think its loans growth aim is a tall order to hit, especially since there is an upcoming general election in April, creating business uncertainty. Hence, we believe 1H19’s loans growth is likely to stay muted but should pick up pace in 2H19. We reckon on a full-year basis, loans growth should only come in at mid-single digit percentage.

Deposits growth. Given Maybank Indonesia’s high loan-to-deposit ratio (LDR) of 110%, management needs to build up liquidity buffers to synchronize with loans growth. In turn, the targeted 2019’s deposits increase is 11-12% (2018: -3.7% YoY) while the industry is expected to climb slower at 8-9%. While we see the need to shore up deposits over the medium-to-longer term, it should not be at this fast pace for 2019, in line with our more gentle loans growth expectation.

NIM. Management is guiding 2019 net interest margin (NIM) slippage of 15-20bp. This is premised on higher cost of replenishing liquidity and expecting at least 1 rate hike by Bank Indonesia this year with a total 50bp upward revision vs 6 times in 2018 with a total increase of 175bp; similar to our earlier view, seeing a more dovish Fed stance.

Net credit cost. In 2019, Maybank Indonesia expects to book net credit cost of 95bp vs 102bp in 2018. This is considering the better asset quality trend. Recall, gross impaired loans (GIL) ratio fell 25bp sequentially to 3.1% in 4Q18.

Forecasts. Unchanged. Maybank Group is poised to release its 4Q18 results on 26 February.

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 - 25 Feb 2019