Lower Allowances a Boost to 1Q17

Maybank saw a 19% yoy jump in 1Q17 net profit to RM1.7bn, which came in within expectations. The key earnings drivers were the substantially lower net impairment loss (credit charge at 45bps), better operating income, which sustained a growth rate of 3% yoy, and NIM that rose by +9bps yoy to 2.43%. An increasingly positive economic and capital market outlook is a rerating catalyst for Maybank. We believe Maybank’s asset quality would gradually improve, though as at 1Q17, there has been a marginal uptick in the GIL ratio. Maintain BUY, PT revised to RM10.50 (at 1.5x 2018E P/BV and 2018E ROE of 9.8%).

1Q17 in Line With Expectations. Rebound Due to Lower Allowances

Maybank reported a 19% yoy jump in 1Q17 net profit to RM1.7bn (while EPS was up 14% yoy), in line with both the street’s and our expectations. The robust results were driven by: i) a lower level of allowances (-38% yoy), with the credit charge coming in at 45bps (within management’s guidance of <50bps); and ii) the operating income, which sustained a 3% yoy growth. Fund-based income, which saw a more favourable growth at 8.6% yoy, was underpinned by a 9bps yoy and 10bps qoq NIM improvement (as loan rates were repriced upward and given the ease in funding cost the post-OPR cut). This was, however, mitigated by a lower non-interest income contribution (-15.4% yoy) due to a lower fee income and forex gains. On the other hand, core net profit on a qoq basis was marginally lower by 1.9%, largely due to the lower non-interest income.

Uptick in GIL Ratio to 2.4% Not Specific to Large Corporate Accounts

Maybank continued to see an uptick in its 1Q17 gross impaired loan (GIL) ratio, from 2.28% (4Q16) to 2.4% due to some oil and gas accounts in Singapore and the business banking book. Given an increasingly positive economic outlook, we believe that the chances of further recoveries and an uplift in terms of NPLs remain high.

Maintain BUY. PT Revised to RM10.50 From RM10.00

Maintain BUY. As we roll forward our valuation to 2018E, our Price Target has been revised upward to RM10.50, based on a 2018E P/BV target multiple of 1.5x (from 1.45x CY17E P/BV target). This is underpinned by a cost of equity of 8.2% (from 8.6%) and a 2018E ROE of 9.8% (from 10%, based on 2017E). Our target multiple (1.5x) is in line with Maybank’s past- 5-year average and we believe that this is justified by an improving macro outlook, likely further upside from allowance recovery and potential uplift in restructured and rescheduled (R&R) loans (hence, upside of 0.33ppts in the GIL ratio). Downside risks: higher-than-expected impairment charges; weaker loan growth.

Source: Affin Hwang Research - 26 May 2017