Maybank’s Indo unit expanded its profit by 5% YoY, thanks to lower loan loss provision. Sequentially, NIM widened 10bp. However, loans growth continued to contract and gross NPL ratio spiked during the quarter. Overall, results were largely 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 and (ii) less susceptible to foreign equity sell-off. Hence, retain BUY and GGM-TP of RM9.05, based on 1.23x FY20 P/B.

Largely in line. Maybank Indonesia (79% -owned subsidiary) registered 4Q19 profit of IDR733bn (doubled QoQ, +5% YoY), bringing FY19 sum to IDR1,843bn (-16% YoY); the results were largely within expectations, making up 106% of both our and consensus full-year forecasts.

QoQ. The combination of lower loan loss provision (-70%) and positive Jaws induced profit to double; opex fell 8% mainly on the back of lower admin costs (-12%). Despite net interest margin (NIM) widening 10bp during the period, it was cancelled off by the 6% fall in loans growth.

YoY. Again the 5% rise in bottom-line was owing to the drop in bad loan allowances (- 40%). Otherwise, pre-provision profit would have fallen 4% due to weak total income showing (-2%); non-interest income (NOII) fell 4% as fee income decreased 5% while forex gain shrank 11%.

YTD. Net profit (-16%) was dragged by higher opex (+6%) and provision for impaired loans (+36%). However, these were alleviated by better NOII (+14%) as fee and forex income jumped 4% and 88%, respectively. Also, its MTM gain of IDR145b (vs IDR8b in FY18) helped as well.

Other key trends. Loans growth contracted 8.7% YoY (3Q19: -1.7%) while deposits followed suit by falling 5.3% YoY as well (3Q19: +4.3%). In turn, loan-to-deposit ratio remained high at 110% (-1ppt QoQ). As for asset quality, gross NPL ratio spiked 67bp sequentially to 3.3% (mainly due to its agriculture and manufacturing segments).

Outlook. The 4 rate cuts in 2H19 and the still intense deposit competition in Indonesia should go on to exert pressure on FY20 NIM. However, we continue to believe loans growth will gradually pick up momentum over the next one year, as businesses should now be more willing to invest - this is supported by accommodative monetary policy and pro-growth government policies such as omnibus law, super deductible tax, and structural reforms (aimed to improve the nation’s productivity and competitiveness).

Forecast. Unchanged as Maybank Indonesia’s 4Q19 results were largely in line with estimates; it contributes c.6-7% to group’s PBT (immaterial). We note Maybank Group is poised to release its 4Q19 results on 27 Feb.

Retain BUY and GGM-TP of RM9.05, based on 1.23x FY20 P/B with assumptions of 10.1% ROE, 8.8% COE, and 3.0% LTG. This is in line to its 5-year average of 1.27x but ahead of the sector’s 0.95x. The premium is fair given its regional exposure and leadership position. Besides, 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 - 20 Feb 2020