Maybank’s 2Q21 net profit was up 66% YoY given lower provision for bad loans. That said, NIM expanded QoQ, loans growth held steady, and asset quality was resilient. Overall, results were within expectations and thus, our forecasts were unchanged. We continue to like Maybank for its regional exposure & leadership position. Also, it offers superior dividend yield. Maintain BUY rating and GGMTP of RM9.40, based on 1.22x FY22 P/B.

Within estimates. Maybank registered 2Q21 net profit of RM2.0bn (-18% QoQ, +66% YoY on a core basis, after stripping away modification losses in 2Q20), bringing 1H21 sum to RM4.4bn (+35% YoY). This was within estimates, forming 55 -58% of our and consensus full-year forecasts; we see loan loss provision creeping up in subsequent quarters due to Covid-19 lockdowns.

Dividend. 1 St Interim DPS of 28sen Was Declared (vs 2Q20: Nil). Ex-date TBD Later.

QoQ. The 18% drop in bottom-line came on the back of negative Jaws (total income - 10% vs opex +4%); this was no thanks to a 41% decline in non-interest income (NOII) as underwriting profit at its insurance division fell 96% while also incurred heavy forex and derivative losses. That said, better net interest margin (NIM; +6bp) and lower lo an loss allowances (-38%) helped to cushion the damage.

YoY. Earnings grew 66% given lower provision for impaired loans (-70%). Otherwise, total income growth of 4% was largely erased by the 8% jump in opex. Key drag at the top was NOII, which fell 30% due to lower investment-related gains (-56%) along with forex and derivative losses.

YTD. Positive Jaws from quicker total income growth vs opex (+1ppt) coupled with the 49% decrease in bad loan allowances, led to a 35% rise in net profit.

Other key trends. Loans and deposits growth were at 4.1% (1Q21: +3.1%) and 5.5% YoY (1Q21: +10.3%) respectively. In turn, loan-to-deposit ratio (LDR) stayed relatively unchanged QoQ at 90%. As for asset quality, gross impaired loan (GIL) ratio fell 2bp sequentially 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 limited scope for further CASA expansion. Also, loans growth is seen to stay resilient given gradual economic reopening under the National Recovery Plan. 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 FY21 by both us & 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. Unchanged as 2Q21 Results Were Within Estimates.

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 and (ii) less susceptible to foreign equity sell-off.

Source: Hong Leong Investment Bank Research - 27 Aug 2021