Maybank’s Indo unit grew 30% YoY, thanks to lower bad loan allowances. If not for this, pre-provision profit would have gone up by only 5%. NIM slipped 11bp sequentially, loans growth did not gain traction, and asset quality deteriorated during the quarter. Overall, results were largely within expectations; no change to our forecasts. We still believe that the stock’s risk-reward profile is balanced by its muted loans growth and lacklustre asset quality. Hence, retain HOLD and GGM-TP of RM7.20, based on 0.97x FY20 P/B.

Largely in line. Maybank Indonesia (79% -owned subsidiary) registered 1Q20 profit of IDR538b (-27% QoQ, +30% YoY). This was largely within both our and consensus expectations, making up 30-32% of respective full year forecasts; we believe loan loss provision will rise more in subsequent quarters due to the impact of Covid-19 crisis.

QoQ. Higher loan loss provision (+49%) and negative Jaws caused earnings to drop 27%; total income fell 5% while opex rose 4%. This was caused by a 11bp slippage in net interest margin (NIM), weaker fee-related income (-31%), and higher admin costs (+6%).

YoY. On the contrary, bottom-line jumped 30% given the drop in bad loan allowances (-30%). Also, quicker total income growth (+3%) vs opex (+1%) led to positive Jaws; non-interest income (NOII) spiked 16% as investment and forex gains quadruple and grew 41% respectively.

Other key trends. Loans growth contracted 10.6% YoY (4Q19: -8.2%) while deposits followed suit by falling 8.7% YoY as well (4Q19: -5.2%). Nevertheless, loan-to-deposit ratio remained high sequentially at 104% (-7ppt QoQ). As for asset quality, gross NPL ratio spiked 27bp QoQ to 3.6% primarily due to its manufacturing, trading, restaurant, and hotel segments.

Outlook. Similar to every other country in the world, Indonesia will be economically hit by the Covid-19 crisis in FY20. Loans growth is expected to taper and the multiple rate cuts (2x so far this year) will continue to exert pressure on NIM. Also, we see asset quality deteriorating further; that said, non-performing loans is unlikely to spiral out of control (at least for this year) since Otoritas Jasa Keuangan (government agency that regulates and supervises the financial services sector) has relaxed the debt quality assessment and restructuring requirements on affected borrowers.

Forecast. Unchanged as Maybank Indonesia’s 1Q20 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 1Q20 results on 21 May.

Retain HOLD and GGM-TP of RM7.20, based on 0.97x FY20 P/B with assumptions of 9.1% ROE, 9.2% COE, and 3.0% LTG. This is below its 5-year mean of 1.27x but ahead of the sector’s 0.77x. The discount is fair as its ROE output is 2ppt below the 5- year average while the premium to peers is warranted given its regional exposure and leadership position. Besides, it offers superior dividend yield of c.7% (2ppt higher than peers).

Source: Hong Leong Investment Bank Research - 20 May 2020