Lower Allowances Drove Qoq Profit Expansion

Maybank’s 3Q17 net profit of RM2.0bn jumped +13% yoy and 22% qoq, driven by lower allowances. 9M17 net profit of RM5.38bn (+23.5% yoy) was in line with our and consensus estimates. No negative surprises – results were driven by strong operational improvement (expansion in 9M17 NIM), a lower annualized 9M17 credit charge (down to 48bps from 64bps) and the absence of substantial impairment. 9M17 ROE improved to 10.3% vis-a-vis 9.2% in 9M16. Maintain BUY and 12-month PT of RM10.50 (based on a 1.5x 2018E P/BV; 2018E ROE of 9.8%).

9M17 in Line With Expectations. Lower Impairments the Key Driver

Maybank’s 9M17 net profit rose 24% yoy to RM5.38bn (EPS flat yoy), in line with both the street’s and our expectations. Operationally, Maybank saw improved 9M17 fund-based income (+10% yoy) with NIM at 2.39% (+13bps yoy) while overall loans were up 5.3% yoy and 1.2% qoq (expansion across ASEAN). Despite a 7.0% yoy increase in 9M17 operating expenses, the CIR ratio remained steady at 49.1%. A lower 9M17 annualized credit charge, down to 48bps from 64bps (9M16) coupled with the absence of substantial impairments drove the overall 9M17 profitability higher. This was also reflected in the 9M17 ROE at 10.3% vis-a-vis 9.2% in 9M16. On the credit cost outlook, management reiterated its unchanged guidance of 50bps for 2017 against our more conservative assumption of 53bps.

NIM Contraction Mitigated by Asset-liability Management

Despite two consecutive quarters of NIM compression, down 4bps in 2Q17 and subsequently another 4bps to 2.35% in 3Q17, we believe that downside risks are mitigated by asset-liability management strategies while there is no rush to compete for deposits (our 2017 forecast at 2.3%). As at Sept17, Maybank had a loan-to-fund and equity ratio of 75.4% while liquidity coverage ratio of 137% as at Sept17 is far above the minimum requirement.

Maintain BUY. PT Unchanged at RM10.50

Maintain BUY. Our Price Target of RM10.50 is based on a 2018E P/BV target of 1.5x (with cost of equity at 8.2% and 2018E ROE at 9.8%). We maintain our 2017-19 forecasts as we believe that Maybank’s operating income momentum will be sustained by current economic fundamentals. Downside risks: rise in credit cost; subdued loan.

Source: Affin Hwang Research - 4 Dec 2017