Maybank Indo’s earnings fell 77% YoY in 4Q20 due to higher loan loss provision and weak total income (loans growth, NIM, and fees contracted); that said, these were softened by the drop in opex. Separately, NPL ratio improved QoQ due to proactive assistance given to troubled customers. Overall, results were broadly within estimates and thus, forecasts were unchanged. In our view, 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, (ii) strong dividend yielder, and (iii) less susceptible to foreign equity sell-off. Retain BUY and GGM-TP of RM9.45, based on 1.24x FY21 P/B.

Broadly in line. Maybank Indonesia (79%-owned subsidiary) posted 4Q20 profit of IDR167b (-42% QoQ, -77% YoY), bringing FY20 sum to IDR1,266b (-31% YoY). This was largely in line with both our and consensus expectations, making up 104-106% of full year forecasts.

QoQ. The 42% fall in bottom-line was owing to higher loan loss provision (+45%); this erased the positive Jaws achieved from the 3% rise in total income and the 6% drop in opex. Noticeably, non-interest income (NOII) grew by a robust 19%, on the back of better forex gains (+52%) and other fees (+25%). That said, net interest margin (NIM) continued to narrow (-9bp).

YoY. Net profit declined 77% due to a 17% decreased in total income while bad loan allowances tripled; we saw contraction in loans (-16%), NIM (-47bp), and fees (-26%). That said, these were cushioned by the fall in opex (-16%).

YTD. Similarly, earnings fell 31% due to weak top-line (-10%) and higher provision for impaired loans (+17%). The same drivers dragging down YoY total income was seen hurting profitability again on a YTD basis.

Other key trends. Both net loans and deposits growth remained weak at -15.8% YoY (3Q20: -17.0%) and +3.9% YoY (3Q20: +0.8%) respectively. However, sequential net loan-to-deposit ratio improved 3ppt to 90%. As for asset quality, gross NPL ratio fell 38bp QoQ to 3.96% due to proactive assistance extended to troubled customers.

Outlook. Considering the interest rate reduction in Nov-20 and Feb-21, NIM recovery will likely stall. In addition, loan de-risking and re-profiling activities will cap expansion; however, the focus on discipline deposit pricing and better funding management could alleviate NIM pressure. As for loans growth, it is seen to stay tepid for now as Covid- 19 related headwinds drag near-term showing but should pick up pace 6-12 months down the road. Besides, loan restructuring efforts would help to limit a significant sag in NPL ratio. Notably, Otoritas Jasa Keuangan (government agency that regulates and supervises the financial services sector) has prolonged the loan restructuring program until Mar-22 to support troubled borrowers.

Forecast. Unchanged as Maybank Indonesia’s 4Q20 results were largely in line with estimates; it contributes c.6-7% to group’s PBT (immaterial).

Retain BUY and GGM-TP of RM9.45, based on 1.24x FY21 P/B with assumptions of 8.5% ROE, 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.6% (2ppt 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 - 1 Mar 2021