Maybank Indo saw net profit dropped 18% YoY in 3Q20, no thanks to tepid total income as loans growth, NIM, and fees contracted; that said, these were offset slightly by lower bad loan provision. Besides, NPL ratio improved sequentially due to proactive assistance given to troubled customers. Overall, results were largely within expectations and hence, forecasts were unchanged. In our view, the stock’s risk-reward profile remains balanced as there are no compelling catalysts to re-rate the stock, given tough operating landscape. Keep HOLD and GGM-TP of RM7.35, based on 0.96x FY21 P/B.

Largely in line. Maybank Indonesia (79%-owned subsidiary) registered 3Q20 profit of IDR289b (+6% QoQ, -18% YoY), which brought 9M20 sum to IDR1,099b (-1% YoY). This was largely in line with both our and consensus expectations, making up 83-86% of respective full year forecasts (we believe loan loss provision will balloon in the final quarter due to impact of Covid-19 headwinds).

QoQ. The 6% rise in bottom-line was owing to lower loan loss allowances (-41%); this masked the overall weak performance as net interest and non-interest income (NOII) fell 12% and 7% respectively, because of loans contraction (-5%), net interest margin slippage (NIM, -32bp) and lower forex gains (-61%).

YoY. Net profit dipped 18% given tepid top-line (-21%); key culprits were shrinkage in loans growth (-17%), NIM (-28bp), and fees (-32%). That said, these were cushioned by the decline in bad loan provision (-30%).

YTD. Earnings ticked down slightly by 1% despite weak total income (-8%), thanks to lower allowance for impaired loans (-9%) and normalizing downward effective tax rate (-4ppt).

Other key trends. Net loans growth dropped 17.0% YoY (2Q20: -14.5%) but deposits did not follow suit and nudged up 1% YoY instead (2Q20: -15.5%). In turn, sequential net loan-to-deposit ratio improved 17ppt to 93%. As for asset quality, gross NPL ratio fell 69bp QoQ to 4.3% due to proactive assistance extended to troubled customers

Outlook. We see the multiple interest rate cuts this year (4x so far, totalling to -100bp) to continue exert pressure on NIM. Also, their plan to switch to lower-yielding but safer assets will cap expansion; however, Maybank Indonesia’s focus on discipline deposit pricing and better funding management could help to prevent a sharper NIM erosion. Besides, loans growth is expected to stay tepid, considering the confluence of events from Covid-19 headwinds. That said, pick-up in loan restructuring efforts would help to limit a significant deterioration in NPL ratio.

Forecast. Unchanged as Maybank Indonesia’s 3Q20 results were largely in line with estimates; it contributes c.6-7% to group’s PBT (immaterial).

Retain HOLD and GGM-TP of RM7.35, based on 0.96x FY21 P/B with assumptions of 8.5% ROE, 8.7% COE, and 3.0% LTG. This is beneath its 5-year mean of 1.21x but ahead of the sector’s 0.74x. 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. In our opinion, Maybank’s risk-reward profile is balanced as there are no compelling catalysts to re-rate the stock, given tough operating landscape.

Source: Hong Leong Investment Bank Research - 27 Oct 2020