Maybank’s Indo unit posted 4-fold QoQ increase in earnings, thanks to positive Jaws (from stronger total income) and lower loan loss provision. Also, NIM has widened sequentially. However, loans growth remained weak and NPL ratio has continued to climb higher. That said, results were in line and thus, our forecasts were unchanged. We still like Maybank for its regional exposure and leadership position. Furthermore, it offers superior dividend yield. Besides, it is one of the least affected bank by “Makmur Tax” and its lower foreign shareholding level vs larger banks, makes it less susceptible to sell-off. Maintain BUY and GGM-TP of RM9.40, based on 1.22x FY22 P/B.

Within expectations. Maybank Indonesia (79%-owned subsidiary) reported 3Q21 net earnings of IDR536bn (+4-fold QoQ, +86% YoY), bringing 9M21 total to IDR1,062bn (-3%). This was in line with estimates, forming 77-80% of our and consensus full-year forecasts.

QoQ. Positive Jaws from stronger total income growth (+9%) coupled with lower loan loss provision (-48%) led to the 4-fold spike in net profit. At the top, net interest margin (NIM) expanded 33bp while non-interest income (NOII) increased 5% on the back of a 28% rise in fees. Opex, on the other hand, saw a 1% decline.

YoY. Similarly, earnings jumped 86%, thanks to positive Jaws (total income rose 6ppt quicker than opex) and lower allowance for bad loans (-38%). During the quarter, NIM widened 11bp but NOII fell 4% given weaker forex and mark-to-market (MTM) gains at -49% and -63% respectively.

YTD. Bottom-line decreased 3%, dragged by negative Jaws as total income dropped 7% (combination of loans shrinkage and tepid NOII). That said, lower impaired loans provision (-26%) absorbed some of the revenue bruise.

Other key trends. Both net loans and deposits growth remained weak at -11.8% YoY (2Q21: -16.6%) and -12.6% YoY (2Q21: +1.6%) respectively. As such, sequential net loan-to-deposit ratio climbed 5ppt to 95%. For asset quality, gross NPL ratio increased 22bp QoQ to 4.6%, mainly due to the trading, restaurant, and hotel segment.

Outlook. We expect NIM to hold steady at current levels since Bank Indonesia seems to have paused its monetary easing cycle, instead preferring to lean on other policies to lift domestic credit demand (loosening down-payment rules). Also, loan de-risking and re-profiling activities will likely prevent its NIM from widening. As for loans growth, we see recovery in the next 6-9 months. Separately, loan restructuring efforts will help to limit a significant deterioration 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-23 to support troubled borrowers.

Forecast. Unchanged as Maybank Indonesia’s 3Q21 results were within 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 0.87x. The premium is warranted considering its regional exposure and leadership position. Also, it offers superior dividend yield of c.7% (3ppt higher vs peers). Besides, it is one of the least affected bank by “Makmur Tax” and its lower foreign shareholding vs larger banks, makes it less susceptible to sell-off.

Source: Hong Leong Investment Bank Research - 2 Nov 2021