No Negative Surprises; It’s Back to Business

Maybank’s 1Q18 net profit of RM1.87bn was up +9.9% yoy though down 12.2% qoq. 1Q18 net profit was in-line with our expectation, but below consensus estimate by about 8.6%. In our view, the selldown of Maybank’s shares could be due to two reasons: i) concerns over Maybank’s exposure to Hyflux Ltd, and ii) lower-than-expected 1Q18 numbers. On a more positive note, we take the view that the share price correction is a buying opportunity as potential defaults related to Hyflux Ltd could have been taken care of under the MFRS 9 adoption on Day-1. Maintain BUY, PT unchanged at RM12.00 as we roll-forward our valuation to CY19 (based on a 1.73x 2019E P/BV).

In-line With Affin’s Expectations; Decent Pre-provision Profit Growth

Maybank reported a 1Q18 net profit of RM1.87bn, up 9.9% yoy while on a qoq basis was down by -12.2% due to higher impaired loan allowances and slightly weaker non-interest income. That said, 1Q18 net profit was within Affin’s expectation but accounted for only 23% of street’s estimate of circa RM8.2bn for 2018. Despite seeing flat loan growth on a ytd basis (tracking behind our target of circa 4.5%), Maybank’s 1Q18 fund-based income generation (+2.9% yoy; +1.8% qoq) was not impacted, benefiting from a 25bps OPR hike and pricing discipline (with better yields from the Islamic Banking assets). The group’s overheads were flat yoy (due to cost-control measures) and as a result, pre-provision profit saw a +10.8% yoy growth.

No Negative Surprises in 1Q18 Results, in Our View…

In our view, the market may have been overly optimistic on Maybank’s 1Q18 results, but we think it was very much within management’s guidance. The adoption of MFRS 9 only had a -39bps impact on CET 1 ratio on Day 1 (in-line with management’s guidance), 1Q18 NIM saw an expansion of 9bps qoq to 2.39%, credit charge at 41bps (steady yoy) while the cost-to-income ratio stood at 47.6% (with positive jaws of 5.4%). 1Q18 annualized ROE came in at 10.5% vs. 10% in 1Q17 and a stronger 12.4% in 4Q17 (management’s guidance at ~11% for 2018E).

Reiterate BUY. PT Unchanged at RM12.00 Despite Our Shift to CY19E

Maintain BUY. Despite the shift in our valuation basis to 2019, our Price Target of RM12.00 remains unchanged, now based on a lower P/BV target of 1.74x (from 1.77x), with a cost of equity of 8.2% and 10.5% 2019E ROE. Higher cash dividends could be on the cards as management raises the cash payout from 40% while reducing the portion of future stock dividends.

Source: Affin Hwang Research - 30 May 2018