Maybank’s Indo unit posted earnings gain of 3% QoQ, thanks to positive Jaws; NIM widened and NOII improved. Also, gross NPL ratio fell during the quarter. That said, loans growth contracted. Overall, results were in line with estimates; no change to our forecasts. 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 RM9.50, based on 1.30x 2020 P/B.

Within expectations. Maybank Indonesia (79%-owned subsidiary) registered 3Q19 earnings of IDR353bn (+3% QoQ, -38% YoY), bringing 9M19 sum to IDR1.1tr (-26% YoY). Although weak, it was in line with expectations, making up 73-74% of our and consensus full-year forecasts, respectively.

QoQ. The 3% earnings improvement came on the back of positive operating leverage as pre-provision profit was up 8%, thanks to positive Jaws; non-interest income (NOII) increased 7% given better overall fee income (+8%) and mark-to-market (MTM) gains (+34%). Also, its net interest margin (NIM) widened 14bp during the period.

YoY. Negative Jaws from higher opex (+12%) and the spike in loan loss allowances (+86%) contributed to 38% drop in bottom line. Otherwise, pre-provision profit would have ticked up 2% due to strong NOII performance (+43%); fee income jumped 25%, while forex and MTM gain ballooned 4-fold and 9-fold, respectively.

YTD. Similar to YoY showing, net profit (-26%) was pulled down by higher opex (+8%) and provision for impaired loans (+60%). However, these were again eased by better NOII (+23%) as fee and forex income rose 9% and 3-fold, respectively. Also, its MTM gain of IDR127bn (vs -IDR3bn in 9M18) helped as well.

Other key trends. Loans growth contracted 1.7% YoY (vs 2Q19: +6.7%) and from a low base, deposits grew 4.3% YoY (vs 2Q19: +10.1%). However, loan-to-deposit ratio (LDR) rose 3ppt sequentially to 111% due to a quicker QoQ contraction in deposits vs loans (-7.7% vs -4.3%). As for asset quality, gross NPL ratio fell 46bp QoQ to 2.60% - we suspect there were write-offs at its mining and business service segments.

Outlook. With Bank Indonesia lowering its key interest rate for 4 successive months (July-Oct 2019), positive loan repricing is poised to lose momentum (recall, there were 6 interest rate hikes in 2018). Also, we gathered deposit competition has been intense in Indonesia. Hence, NIM improvement is unlikely to sustain. However, we still believe loans growth will gradually pick up momentum over the next one year, as businesses should now be more willing to invest, considering President Jokowi stays in power for a second term (more clarity in economic and political decisions).

Forecast. Unchanged as Maybank Indonesia’s 3Q19 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 3Q19 results on 28 Nov.

Retain BUY and GGM-TP of RM9.50, based on 1.30x 2020 P/B with assumptions of 10.2% ROE, 8.5% COE, and 3.0% LTG. This is in line to its 5-year average of 1.29x but ahead of the sector’s 1.00x. The premium is fair given its regional exposure and leadership position. Besides, it offers superior dividend yield of >6% (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 - 30 Oct 2019