Maybank’s 2Q17 net profit of RM1.66bn jumped +43% yoy though it eased by 2.6% qoq (as a result of higher allowances). 1H17 net profit was in-line with our and consensus estimates as we anticipate a firmer 2H17. Operationally, Maybank saw improved 1H17 fund-based income with NIM at 2.41% (+13bps yoy) while overall loans were up 6.4% yoy. Lower annualized credit charge of 57bps and the absence of a large impairment were one of the key drivers to an improved ROE of 9.6%. Maintain BUY, PT maintained at RM10.50 (based on a 1.5x 2018E P/BV; 2018E ROE of 9.8%). An interim DPS of 23 sen was proposed (2Q16: 20 sen).

1H17 in Line With Expectations. Lower Impairments the Key Driver

Maybank 1H17 net profit jumped 30% yoy to RM3,361m (EPS up 24% yoy), in line with both the street’s and our expectations. The robust results were driven by: i) lower allowances (-25.7% yoy), with an annualized credit cost at 57bps; ii) absence of a large impairment (which hit 2Q16, amounting to RM200m); and iii) operating income which grew 5.8% yoy. This was mitigated by lower 1H17 non-interest income contribution (-4.8% yoy) due to higher unrealized derivatives losses. Fund-based income was flat qoq, as NIM was down by 4bps qoq to 2.39%. 1H17 NIM which edged up by 13bps yoy to 2.41% was due to an upward repricing of loan rates. On the other hand, core net profit came down by 2.6% qoq, arising from higher impaired loan allowances (+53% qoq).

Uptick in GIL Ratio From 2.4% to 2.53% Due to Overseas Accounts

Maybank saw a further uptick in its gross impaired loan (GIL) ratio from 2.4% (1Q17) to 2.53% in 2Q17, as a result of some oil & gas sector exposure in its Singapore loanbook as well as the shipping sector in Indonesia. Management guided that there could be some risk to 2017 credit cost, which may overshoot its guidance of 50bps (our 2017-19E assumptions are at 53-55bps, hence no revisions on forecasts).

Maintain BUY. PT Unchanged at RM10.50

Maintain BUY. Our Price Target is unchanged at RM10.50, based on a 2018E P/BV target multiple of 1.5x (with cost of equity at 8.2% and 2018E ROE at 9.8%). We maintain our 2017-19E forecasts as we believe that Maybank will benefit from a more exciting market in 2H17, given recent announcements of infrastructure projects while capital market activities are also picking up. Downside risks: additional allowance in 2H17 for risky sectors (O&G, shipping); subdued loan growth in 2H17; NIM compression.

Source: Affin Hwang Research - 5 Sept 2017