Maybank’s 4Q17 net profit of RM2.1bn was up +5.2% qoq, though down 9.7% yoy (due to higher overheads). 2017 net profit of RM7.5bn (+11.5% yoy) was in line with our and consensus estimates. No negative surprises – 2017 results were driven by decent operating profit growth, NIM expansion, a lower credit charge (down to 40bps from 62bps) and the absence of substantial impairments. 2017 ROE improved to 10.9% vs. 10.6% in 2016. Maintain BUY, raising PT to RM12.00 (based on a 1.77x 2018E P/BV; 2018E ROE of 10.6%).

In Line With Expectations; Operationally Strong, Lower Impairments

Maybank achieved a 2017 net profit of RM7.52bn (+11.5% yoy), coming in within Affin and the street’s estimates of circa RM7.2bn. A final dividend of 32 sen was proposed (4Q16: 32 sen), which totalled 55 sen for 2017 (2016: 52 sen). Operating income for 2017 grew by 4.9% yoy (largely underpinned by fund-based income growth), but the impact was mitigated by a sharper increase in operating expenses (+8.1% yoy; CIR at 48%). Lower impaired loan allowances and the absence of a large impairment were additional key drivers to earnings, as credit cost eased to 40bps from 62bps in 2016. Though Maybank’s loan growth has been subdued at 1.7% yoy in 2017 (affected by corporate repayments), this has not affected fund-based income growth, which grew at 8.8% yoy while NIM expanded by +9bps yoy to 2.27% as a result of the repricing of loan rates.

Outlook in 2018 – NIM Expansion, Flat Credit Charge Rate, ROE 11%

Management is guiding for NIM expansion of 5bps (though could be offset by competition), 40-45bps in net credit charge (under the adoption of MFRS 9) and a 2018 ROE of circa 11%. No guidance was given on loan growth, but management believes that Maybank could perhaps achieve growth of slightly above 4.5% in Malaysia. Management is targeting a CIR of circa 48%, while looking at cost optimization strategies. The Day-1 adjustment of MFRS 9 could possibly have a -40bps impact on Maybank’s CET 1 ratio.

Reiterate BUY. PT Revised to RM12.00 From RM10.50

Maintain BUY. We revise our Price Target to RM12.00 (based on a P/BV target of 1.77x, with the cost of equity at 8.2% and 2018E ROE at 10.6%) from RM10.50 (based on a 1.5x P/BV target). We revise our 2018-19E EPS forecasts by 6%, on the back of: i) a 25bp hike in rates (with the recent OPR hike); ii) our lower credit cost assumption, from 53bps to 43bps; and iii) some minor growth in operating expenses.

Key Risks

Key downside risks – return of funding pressure in 2018 as Maybank may boost deposit growth further as the net LDR now stands at 94.9%, hence, may result in NIM compression. Other risks include moderation in consumer/business sentiment, higher-than-expected increase in overheads and an increase in delinquency rates.

Source: Affin Hwang Research - 1 Mar 2018