Bottom-line of Maybank’s Indo unit doubled QoQ, thanks to the fall in loan loss provision and lower effective tax rate. Otherwise, weak total income along with the higher opex would have dragged performance. Separately, we saw QoQ NIM improved but NPL ratio climbed mainly due to a smaller loan base (contracted). Overall, results were in line with estimates and thus, forecasts were unchanged. We still like Maybank for its regional exposure and leadership position. Also, it offers superior dividend yield. Besides, we believe its risk-reward is skewed to the upside premised on being: (i) a prime candidate for rotational recovery play among FBMKLCI constituents and (ii) less susceptible to foreign equity sell-off. Retain BUY with a GGM-TP of RM9.20, based on 1.22x FY21 P/B.

Within expectations. Maybank Indonesia (79%-owned subsidiary) chalked in 1Q21 earnings of IDR381bn (doubled QoQ, -29% YoY). This was in line with expectations, forming 24-25% of our and consensus full-year estimates.

QoQ. The fall in loan loss provision (-56%) and lower effective tax rate (-31ppt) helped bottom-line to double. That said, we saw negative Jaws as total income fell 4% while opex was up 10%; non-interest income (NOII) dipped 30% due to weaker fees (-14%), forex gains (-62%) & investment performance (swung to a loss). Also, it was dragged by higher personnel (+10%) & admin expenses (+10%). On a more positive note, net interest margin (NIM) widened by 29bp.

YoY. Net profit dropped 29%, no thanks to negative Jaws (total income declined 5ppt quicker than opex); this was due to narrowing NIM (-12bp), loans contraction (-16%), and weaker NOII (-24%; bogged down by similar QoQ drivers). However, allowances for bad loans barely moved (-1%).

Other key trends. Both net loans and deposits growth remained weak at -16.3% YoY (4Q20: -14.0%) and flattish YoY (4Q20: +3.9%) respectively. However, sequential net loan-to-deposit ratio improved 4ppt to 88%. As for asset quality, gross NPL ratio rose 20bp QoQ to 4.20%, mainly due to a smaller loan base.

Outlook. Unlike some other countries in ASEAN, Indonesia’s Covid-19 cases seemed to be under controlled while its economy is gradually healing. Thus, we reckon there is slim likelihood of further rate cut. However, we believe large portion of Maybank Indo’s deposits have already been repriced downwards; this coupled with loan de-risking and re-profiling activities will likely cap NIM expansion going forward. As for loans growth, we see it picking up pace in the next 6-9 months. Besides, loan restructuring efforts will help to limit a significant sag in NPL ratio; Otoritas Jasa Keuangan (a 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 1Q21 results were largely in line with estimates; it contributes c.6-7% to group’s PBT (immaterial).

Retain BUY and GGM-TP of RM9.20, based on 1.22x FY21 P/B with assumptions of 8.4% 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 0.90x. 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 - 30 Apr 2021