Maybank’s 4Q19 net profit rose 5% YoY (largely within estimates) given positive Jaws, writebacks, and better associate gains. However, these were offset by higher loan loss provision. Also, loans growth slowed further while GIL ratio fell slightly. Regardless, we reduce FY20-21 profit by 2-4% to factor in higher NIM slippage. Overall, the stock’s risk-reward profile has become more balance, as its loans growth has slowed and asset quality is lacklustre. Also, the strong FY19 dividend payout is not seen to recur in FY20-21. Downgrade to HOLD and with a lower GGM-TP of RM8.60 (from RM9.05), based on 1.18x FY20 P/B.

Largely in line. Maybank posted 4Q19 net profit of RM2.4b (+23% QoQ, +5% YoY), bringing FY19 earnings to RM8.2b (+1%). This was largely in line with expectations, making up 104% of both our and consensus full-year estimates.

Dividend. Final cash DPS of 39sen (+22%) was proposed. Ex-date TBD later. This beat expectations as we only forecasted DPS of 34sen.

QoQ. The 23% jump in earnings was mainly due to lower bad loan allowance (-65%). If not for this, pre-provision profit was flat as total income did not expand. Net interest margin (NIM) slipped 3bp during the quarter while non-interest income (NOII) fell 1%.

YoY. Bottom-line was up 5% given positive Jaws, where total revenue grew 3% vs an opex decline of 4%. Also, it was fuelled by some writebacks and better associate contribution. However, these were offset by higher loan loss provision (+4-fold).

YTD. Although pre-provision profit showed a decent rise of 6% (thanks to investment gains, which led to an 11% spike in NOII), the higher allowance for impaired loans (+44%) caused earnings to nudge up only 1%.

Other key trends. Both loans and deposits growth momentum slowed further to 1.2% (3Q19: +3.4%) and 1.6% YoY (3Q19: +5.5%) respectively. However, loan-to-deposit ratio (LDR) was flat sequentially at 93%. As for asset quality, gross impaired loans (GIL) ratio inched down 2bp QoQ mainly due to reclassification out from reschedule and restructure (R&R) loans to performing status.

Outlook. Although NIM held steady this quarter, it will be challenged in 1Q20 by the recent OPR cut in Malaysia, accompanied by the still intense deposit rivalry landscape in Indonesia (due to tight liquidity). Also, loans growth momentum is expected to stay tepid, no thanks particularly to Singapore as it seems that the impact of Covid-19 to Singapore is more severe vs Malaysia. While for asset quality, any improvement is limited, in our view, seeing its loan mix is skewed towards businesses, making it less resilient to the slowing economic growth environment.

Forecast. Despite 4Q19 results coming in largely within expectations, we cut FY20-21 profit by 2-4% to factor in higher NIM slippage.

Reduce to HOLD (from Buy) and with a lower GGM-TP of RM8.60 (from RM9.05), following our profit cut and based on 1.18x FY20 P/B (from 1.23x) with assumptions of 9.8% ROE (from 10.1%), 8.8% COE, and 3.0% LTG. This is below its 5-year average but ahead of the sector’s 0.92x. The discount is fair given its lower ROE output which is 1ppt beneath its 5-year mean while the premium is fair given its regional exposure and leadership position. Furthermore, it offers superior dividend yield of c.7% (2ppt higher vs peers). That said, the stock’s risk-reward profile is balanced by its muted loans growth and lacklustre asset quality.

Source: Hong Leong Investment Bank Research - 28 Feb 2020