Although its Indo unit reported weak earnings for 2Q19 (-18% QoQ, -27% YoY), results were largely in line. This was dragged primarily by higher loan loss provision. Also, NIM slipped, loans growth tapered, and asset quality dipped. No change to our forecasts. Overall, we still believe that the stock’s risk-reward profile is skewed to the upside, premised on being: (i) a prime candidate for rotational yield play among FBMKLCI constituents and (ii) less susceptible to foreign equity sell-off. Maintain BUY with GGM-TP of RM10.30, based on 1.40x 2020 P/B.

Largely in line. Maybank Indonesia (79%-owned subsidiary) reported 2Q19 earnings of IDR342b (-18% QoQ, -27% YoY), bringing 1H19 sum to IDR757b (-19% YoY). While weak, this was largely in line, making up 42-43% of our and consensus full-year forecasts, respectively. Recall, 1H18 accounted for 43% of FY18’s net profit.

QoQ. The 18% earnings drop was due to higher allowance for impaired loans (+43%). Otherwise, pre-provision profit was up 8%, thanks to positive Jaws; we noticed non interest income (NOII) increased 27% on the back of better overall fee income (+22%) and mark-to-market (MTM) gains doubled. However, its net interest margin (NIM) fell 21bp during the period.

YoY. Negative Jaws from higher opex (+8%) along with the rise in loan loss provision (+43%) led to 27% drop in bottom-line. On a more positive note, total revenue was up 32% given better NOII performance. We saw overall fee income jumped 10%, forex income tripled, and it booked in a MTM gain of IDR46b instead of a loss of IDR24b.

YTD. Similar to YoY showing, net profit (-19%) was dragged by higher opex (+7%) and provision for impaired loans (+46%). Once more, these were mitigated by better NOII (+14%) from forex income (+2-fold) and MTM gain of IDR66b (1H18: -IDR10b).

Other key trends. Loans growth tapered to 6.1% YoY (vs 1Q19: +11.1%) and from a low base, deposits grew 10.1% YoY (vs 1Q19: +6.1%). However, loan-to-deposit ratio (LDR) rose 2ppt sequentially to 108% due to a quicker QoQ contraction in deposits vs loans (-2.5% vs -1.0%). As for asset quality, gross NPL ratio climbed 17bp to 3.06%; this was caused primarily by delinquencies at the manufacturing and trading sectors.

Outlook. Although positive loan repricing should take its course (adjusting to the six interest rate hikes by Bank Indonesia in 2018), QoQ NIM improvement should be limited as management replenishes its liquidity with higher cost of funds. That said, with President Jokowi remaining in power for a second term (more clarity in economic and political decisions), we see loans growth pick up momentum in 2H19.

Forecast. Unchanged as Maybank Indonesia’s 2Q19 results were within estimates. It contributes c.6-7% to group’s PBT, which is not substantial. We note Maybank Group is poised to release its 2Q19 results on 29 Aug.

Retain BUY and GGM-TP of RM10.30, based on 1.40x 2020 P/B with assumptions of 10.8% ROE, 8.5% COE, and 3.0% LTG. This is largely in line to its 5-year average of 1.31x but ahead of the sector’s 1.11x. The premium is fair considering its regional exposure and leadership in the Malaysia’s banking scene. Also, it offers superior dividend yield of c.7% (2ppt higher than peers). In our opinion, the stock’s risk-reward profile is still skewed to the upside premised on being: (i) a prime candidate for rotational yield play among FBMKLCI constituents and (ii) less susceptible to foreign equity sell-off.

Source: Hong Leong Investment Bank Research - 31 Jul 2019