Maybank saw a 1Q19 net profit of RM1.81bn (-3.3% yoy; -22% qoq), with a relatively flat operating income yoy, while provisions continued to normalize (+18.6% yoy, >100% qoq). 1Q19 net profit accounted for 23% of our 2019 forecast and was broadly in line with our estimate, but below consensus (hence, some earnings downgrades are likely). The quarter has been unexciting, with loan growth flat qoq and +4.8% yoy, while NIM saw a 9bps yoy compression to 2.3%, primarily due to funding cost pressure. For 2019, our concerns are mainly centred on challenges for Maybank’s loanbook, NIM (due to an overall higher funding base) and potentially more chunky impairments in light of weaker market conditions. Maintain HOLD, PT revised to RM8.75 (1.24x 2020E P/BV target).

Results Within Affin’s Expectations; Provisions Spiked in 1Q19

Maybank’s 1Q19 net profit of RM1,809.3m came in 3.3% lower yoy as the group saw a flat operating income yoy (fund-based income +1.6% yoy; fee-based/non-interest income down 1.6% yoy) while overall impairment allowances and losses were up 27% yoy and >100% qoq. The higher credit cost of 47bps in 1Q19 (+6bps yoy and 40bps qoq) came largely from its Singapore operations (due to provisions related to exposure to Hyflux Ltd). In fact, for 1Q19, Maybank Singapore was in the red with a pre-tax loss of SGD79.7m and had provisions amounting to SGD243m (~RM738m). At this juncture, we understand that Maybank has already appointed receivers over the Tuaspring power plant asset and intends to recover the value of the remaining assets.

Maybank Maintains 2019 ROE Target of 11%

Management has maintained its 2019 ROE target at 11% and net credit cost guidance of 40bps. In terms of asset quality, its group GIL ratio saw an increase of 7bps qoq to 2.48%, largely due to spikes at its Indonesia branch. The overall operating income of the group is being driven by its solid fund-based income, though some NIM compression (3-5bps) will be inevitable due to the OPR cut. Maybank’s CIR has been steady at 47.9%. Maybank’s balance sheet remains strong, with a CET 1 ratio of 14.55%.

Reiterate HOLD; PT Adjusted to RM8.75 (from RM9.00)

Maintain HOLD. Our Price Target has been revised to RM8.75 (from RM9.00), now based on a 1.24x 2020E P/BV target (from a 2019E P/BV target of 1.3x), with cost of equity at 9.1% and 2020E ROE of 10.1%. Our assumptions include: 2019 loan growth at 3.4%, net credit cost at 47bps, CIR at 45.4%, and NIM at 2.3%. Downside/upside risks: rise in credit cost; subdued loan growth.

Source: Affin Hwang Research - 31 May 2019