Maybank ended 4Q18 on a high note where bottom-line grew 19% QoQ, thanks to strong NOII and lower loan loss provision; this was largely in line. The 8bp NIM uptick, better asset quality, and quicker loans growth were positive reads. We raise our 2019-20 net profit estimates by 2% on lower NCC assumptions. For now, we reckon Maybank’s risk-reward profile is balanced given its superior yield offering of c.6% but valuation-wise, it is unattractive. Maintain HOLD with a higher GGM-TP of RM10.50 (from RM10.20), based on 1.43x 2019 P/B.

Largely in line. Maybank recorded 4Q18 net profit growth of 19% QoQ to RM2.3b (+9% YoY), carrying FY18 bottom-line to RM8.1b (+8% YoY). This was largely in line, coming in at the higher end of both our and consensus’ forecasts, making up 105% of respective full-year estimates (due to lower net credit charge, NCC).

Dividend. Proposed final DPS of 32sen (flat YoY); cash portion 15sen. This brought full-year DPS to 57sen (+4% YoY).

QoQ. Bottom-line grew 19% primarily on strong non-interest income (NOII, +30%) and lower loan loss provision (-81%). The better NOII was thanks to a good showing at its insurance business (higher premiums earned and dip in contract liabilities), along with a rise in forex gains. Also, net interest margin (NIM) nudged up 8bp to 2.38%.

YoY. The 4% expansion in total income and the drop in bad loan allowances (-59%) helped to lift net profit by 9%. That said, the 6% decline in NOII, capped earnings from rising faster; again, this was owing to a better performance by its insurance arm.

YTD. Positive Jaws from quicker revenue growth (+2%) vs opex (-1%) along with lower allowance for impaired loans (-19%) helped to lift earnings by 8%. Besides, we observed Islamic banking income grew 15% due to more efforts to push financing in this space. Separately, NOII pullback 4% given weaker fee and investment income.

Other key trends. Loans growth gained momentum for the 3rd consecutive quarter (+4.8% YoY) while deposits expansion was a tad faster (+5.6% YoY). Hence, loan-to deposit ratio (LDR) inched down c.2ppt QoQ to 93%. For asset quality, it displayed a drastic improvement as gross impaired loans (GIL) ratio fell 24bp QoQ to 2.41%.

Outlook. We see the need to further build up liquidity buffers as LDR is elevated at 93%. In turn, NIM pressure is expected to persist. In our 2019-20 forecasts, we have considered shrinkage of 1-2bp. While for loans, we predict growth to be at a slower clip of 3-4% in 2019-20 given challenging economic climate. That said, asset quality is not anticipated to wane but we incorporated a higher 2019-20 NCC of 40-42bp into our estimates (2018: 32bp) as a more normalised run-rate.

Forecast. We revised up our 2019-20 net profit forecasts by 2% to reflect lower NCC of 40-42bp from 44-46bp; too aggressive with our assumptions before this.

Maintain HOLD but with a higher GGM-TP of RM10.50 (from RM10.20), based on 1.43x 2019 P/B (from 1.39x) with assumptions of 10.6% ROE (from 10.4%), 8.3% COE and 3.0% LTG. This is a tad higher than its 5-year mean of 1.33x (at +0.5SD) and ahead of the sector’s 1.18x. 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 dividend yield of c.6% (2ppt higher than peers).

Source: Hong Leong Investment Bank Research - 27 Feb 2019