Maybank reported a 2Q18 net profit of RM1.96bn (+18% yoy; +4.7% qoq) bringing 1H18 net earnings to RM3.83bn (+14% yoy). 1H18 results were in-line with our and consensus expectations. Overall pre-provision operating profit (PPOP) was up 7.3% yoy, with 2Q18 PPOP seeing a healthy expansion while overheads saw a marginal decline yoy. Maybank announced its exposure to Hyflux Ltd ( as at June18), which amounted to RM1.95bn. Provisions made in 2Q18 related to this exposure totalled RM315.1m, less than initially feared, while impact to bottomline was negligible as net credit cost for 1H18 remained manageable at 44bps (1H17: 57bps). Maintain BUY and PT of RM12.00 (based on a 1.74x 2019E P/BV). A DPS of 25 sen was proposed.

Within Affin’s Expectations; Healthy Pre-provision Profit Growth

Maybank’s 1H18 net profit stood at RM3.83bn, up 14% yoy underpinned by a stronger 2Q18 whereby net profit of RM1.96bn was up 4.7% qoq (+18% yoy). For the 1H18 period, PPOP continued to expand by 7.3% yoy as overheads declined (-1.6% yoy), insurance surplus transfer increased (>100%) while sustained by fund-based income (+1.6% yoy). This was however, offset by weaker non-interest income for 1H18 due to lower realized investment gains and MTM losses. Overall net credit cost for 1H18 of 44bps (provisions down 20.5% yoy), declined from 57bps in 1H17 despite setting aside a provision of RM315.1m related to Hyflux Ltd (from Singapore). Hyflux is now undergoing a balance sheet restructuring involving disposal of key assets funded (and secured) by Maybank Singapore (i.e. Tuaspring IWPP (exposure at SGD602.4m) and TuasOne (exposure at SGD56.2m)).

2H18 Outlook – Net Credit Cost May Rise >45bps; NIM to Stabilize

Management has guided for a revision in 2018E net credit cost from 40- 45bps to above 45bps due to potential for more accounts (overseas) getting impaired (our 2018E’s assumption is 53bps). Meanwhile, management will potentially manage NIM (1H18 at 2.33%) in 2H18 after taking a cautious move to boost its LCR (1Q18: 153.3%; 2Q18: 144.9%).

Reiterate BUY. PT Unchanged at RM12.00 Based on 1.74x P/BV

We Maintain Our BUY Rating on Maybank, With Price Target of RM12.00 unchanged (based on a P/BV target of 1.74x, cost of equity at 8.2% and 10.5% 2019E ROE). No changes in our earnings forecasts. Downside risks – cautious business sentiment; increase in impairment/provisions.

Source: Affin Hwang Research - 3 Sept 2018