Maybank’s 4Q20 core profit declined 21% YoY due to weak total income, higher provision for bad loans and impaired financial investments. Also, loans growth was flattish. However, NIM improved sequentially. Overall, results were broadly within estimates, save for better-than-expected dividends. Still, we cut FY21-22 profit by 1-2% to reflect new guidance and also factor in a 25bp OPR reduction. All in all, we like the stock mainly for its superior dividend yield. Maintain BUY but with a lower GGM-TP of RM9.20 (from RM9.45), based on 1.22x FY21 P/B.

Largely in line with estimates. Excluding net modification loss, Maybank registered 4Q20 core net profit of RM1.5bn (-21% QoQ, -37% YoY), which brought FY20 sum to RM6.7bn (-18% YoY). This was broadly within expectations, forming 104-106% of our and consensus full-year forecasts.

Dividend. Final DPS of 38.5sen was proposed (4Q19: 39sen), bringing full-year DPS to 52sen (FY19: 64sen). Ex-date TBD later. This beat expectations as we forecasted FY20 DPS of 28.4sen while consensus was 35.8sen.

QoQ. The 21% fall in core earnings was mainly due to a jump in bad loan allowances (+36%) and higher provision for impairment losses on financial investments (RM406m vs 3Q20: RM2m). That said, top-line grew 4% on the back of net interest margin (NIM) improvement of 10bp and better non-interest income (NOII, +4%); this was lifted by underwriting profit at its insurance segment, stronger fees, and forex gains.

YoY. Core bottom-line declined 37% given weak total income (-3%), higher impaired loan provision (+3-fold), and spike in allowances for impaired financial investments.

YTD. Although pre-provision profit rose by commendable 5% (thanks to NOII, which increased 13%), the higher loan loss provision (+2-fold) and allowances for impaired financial investments, caused core earnings to fall 18%.

Other key trends. Loans growth was flat YoY (3Q20: -0.6%) while deposits slowed to 2.6% YoY (3Q20: +4.8%). As result, loan-to-deposit ratio (LDR) ticked up 2ppt QoQ to 90%. For asset quality, gross impaired loan (GIL) ratio fell 12bp QoQ due to write-offs.

Outlook. We see NIM pressure returning (but will be short-lived) given budding 25bp OPR cut in 1H21. On the other hand, loans growth is anticipated to stay tepid for now as Covid-19 related headwinds drag near-term showing but should gain back traction 6-12 months down the road. We expect GIL to creep upwards but would not be overly concerned as Maybank already made heavy pre-emptive provisioning in FY20 and we reckon credit risk has been passably priced in by the market, looking at the high NCC assumption applied for FY21 by us and consensus (above the normalized run -rate but below FY20’s level). Also, we believe the Government and BNM will stay supportive in helping troubled borrowers, limiting a significant sag in GIL ratio.

Forecast. Although 4Q20 results were in line, we cut FY21-22 profit by 1-2% to reflect new set of management guidance and also built in a 25bp OPR reduction.

Maintain BUY but with a lower GGM-TP of RM9.20 (from RM9.45), following our profit cut and based on 1.22x FY21 P/B (from 1.24x) with assumptions of 8.4% ROE (from 8.5%), 7.4% COE, and 3.0% LTG. This is broadly in line with its 5-year mean of 1.20x but ahead of the sector’s 0.86x. The premium to peers is fair given its regional exposure and leadership position. Also, it offers superior dividend yield of c.7% (3ppt higher than peers). In our opinion, the stock’s risk-reward profile is still skewed to the upside premised on it being: (i) a prime candidate for rotational recovery play among FBMKLCI constituents and (ii) less susceptible to foreign equity sell-off.

Source: Hong Leong Investment Bank Research - 26 Feb 2021