Maybank’s Indo unit posted 62% QoQ drop in bottom-line, no thanks to higher loan loss allowances. Also, loans continued to shrink and NPL ratio climbed up. However, QoQ NIM improved. Overall, results were largely within estimates and thus, forecasts were unchanged. We still like Maybank for its regional exposure and leadership position. Furthermore, it offers superior dividend yield. Besides, we believe its risk-reward is tilted favourably 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. Maintain BUY and GGM-TP of RM9.40, based on 1.22x FY22 P/B.

Broadly in line. Maybank Indonesia (79% -owned subsidiary) posted 2Q21 net profit of IDR145bn (-62% QoQ, -47% YoY), which brought 1H21 sum to IDR526bn (-35%). This was largely within expectations, forming 52-55% of our and consensus full-year estimates.

QoQ. The rise in loan loss provision (+86%) caused bottom -line to fall 62%. This was despite a 10% jump in non-interest income (NOII; lifted up by mark-to-market gains), as total revenue remained flat, erased by a 2% drop in net interest income (net loans fell 3%). That said, net interest margin (NIM) widened 12bp, providing some respite.

YoY. Net profit decreased 47%, no thanks to negative Jaws (total income fallen 12ppt quicker than opex); this was due to narrowing NIM (-54bp), loans contraction (-17%), and weaker NOII (-15%; bogged down by lower forex gains). However, allowances for bad loans declined 30%, cushioning some of the damage.

YTD. Similar to YoY trend, negative Jaws as a result of weak total income (-14%) led bottom-line to drop 35%. Again, lower impaired loan provision (-22%) absorbed some of the revenue bruise.

Other key trends. Both net loans and deposits growth remained weak at -16.6% YoY (1Q21: -17.3%) and +1.6% YoY (1Q21: flat) respectively. However, the sequential net loan-to-deposit ratio rose 3ppt to 90%. As for asset quality, gross NPL ratio increased 26bp QoQ to 4.42%, mainly due to a smaller loan base.

Outlook. We expect NIM to hold steady at current levels since Bank Indonesia seems inclined to pause its monetary easing cycle to maintain a stable exchange rate. Also, loan de-risking and re-profiling activities will likely prevent NIM from expanding further. As for loans growth, it is seen to remain tepid for now as Covid-19 related woes drag short-term showing but should pick up pace 6-12 months down the road. Separately, 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 2Q21 results were largely in line with estimates; it contributes c.4-5% to group’s PBT (immaterial).

Retain BUY and GGM-TP of RM9.40, based on 1.22x FY22 P/B with assumptions of 9.4% ROE, 8.2% COE, and 3.0% LTG. This is broadly in line with its 5-year mean of 1.19x but ahead of sector’s 0.88x. The premium fair considering its regional exposure and leadership position. Also, it offers superior yield of c.7% (3ppt higher vs 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 (when appetite for this theme returns) & (ii) less susceptible to foreign equity sell-off.

Source: Hong Leong Investment Bank Research - 3 Aug 2021