Maybank’s 1Q21 profit was up 56% QoQ given positive Jaws (total income grew ahead of opex) & lower loan loss provision. Besides, NIM expanded QoQ, loans growth gained traction, and asset quality was resilient. Overall, results came in at the upper-end of estimates and hence, we raise FY21-23 bottom-line by 5%. We still like Maybank for its regional exposure and leadership position. Also, it offers superior dividend yield. Retain BUY but with a higher GGM-TP of RM9.40 (from RM9.20), based on 1.22x FY22 P/B.

Upper-end of estimates. Maybank posted 1Q21 net profit of RM2.4bn (+56% QoQ, +17% YoY). This came in at the upper-end of estimates, forming 32-34% of both our and consensus full-year forecasts; the stronger net interest margin (NIM) contributed to the better overall bottom line growth.

Dividend. None declared as Maybank only divvy in 2Q and 4Q.

QoQ. The 56% rise in earnings was mainly due to positive Jaws (total income growth of 8% vs opex -2%), lower bad loan allowances (-22%), and provision for impairment losses on financial investments (RM18m vs 4Q20: RM406m). At the top, NIM widened 16bp while non-interest income (NOII) increased 10%; this was lifted by underwriting profit at its insurance division (tripled).

YoY. Bottom-line grew 17% given positive Jaws (where total revenue nudged up 2% while opex declined 4%) and lower loan loss provision (-12%). That said, NOII shrank 7% on the back of investment-related losses amounting to RM70m during the quarter, instead of RM486m gains booked in 4Q20.

Other key trends. Both loans and deposits grew at faster clip to 3.1% (4Q20: flattish) and 10.3% YoY (4Q20: +2.6%) respectively. In turn, loan-to-deposit ratio (LDR) ticked down 1ppt QoQ to 89%. As for asset quality, gross impaired loan (GIL) ratio declined 3bp QoQ due to write-offs, repayments, and recoveries.

Outlook. We expect NIM to remain stable premised on no OPR reduction (since it is already at an all-time low) and benign deposit competition in 2021. Also, loans growth is anticipated to stay resilient. Separately, GIL ratio is likely to creep upwards but we are not overly worried as Maybank already made heavy pre-emptive provisioning in FY20 and in our view, credit risk has been adequately priced in by the market, looking at the high NCC assumption applied for FY 21 by both us and consensus (above the normalized run-rate but below FY20’s level). Furthermore, we believe the Government & BNM will remain supportive in helping troubled borrowers, limiting a significant sag in GIL ratio.

Forecast. Since 1Q21 results were at the upper-end of expectations, we raise FY21- 23 earnings by 5% to account for stronger NIM and reverse the 25bp OPR cut that we had earlier baked into our projections.

Keep BUY but with a higher GGM-TP of RM9.40 (from RM9.20), following our uplift in profit and roll valuations to FY22. The TP is based on 1.22x P/B with assumptions of 9.4% ROE (from 8.4%), 8.2% COE, and 3.0% LTG. This is broadly in line with its 5- year mean of 1.20x but ahead of sector’s 0.89x. The premium to peers is fair given its regional exposure & leadership position. Also, it offers superior dividend yield of c.7% (3ppt higher vs peers). 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 (when appetite for this theme returns) and (ii) less susceptible to foreign equity sell-off.

Source: Hong Leong Investment Bank Research - 28 May 2021