Maybank saw a 2.1% yoy dip in 6M19 net profit to RM3.75bn, while 2Q19 net profit improved by 7.3% qoq. 1H19 net profit was broadly within our estimates, though below street estimates by 9%. The key positive driver in 2Q19 was non-interest income, on the back of more robust trading/investment income as well as lower impairment provisions. Nonetheless, 6M19 operating income was flat (+1.0% yoy), while impairments saw a marginal increase (+2.5% yoy). Management has revised down its ROE target to 10.0-10.5% (from 11.0%) while raising its net credit cost guidance to slightly above 40bps. Maintain HOLD with our target price (TP) revised up slightly to RM8.95 (at 1.26x 2020E P/BV target) from RM8.75. A 25 sen cashonly interim DPS was proposed (while the final dividend is still subject to regulatory approval).

Results Broadly Within Our Expectations; Provisions Eased in 2Q19

Maybank’s 6M19 net profit of RM3,750.2m came in 2.1% lower yoy as the group saw flat operating income (fund-based income +1.0% yoy; noninterest income up 1.0% yoy). 1H19 impairment allowances rose by a marginal 2.5% yoy, equivalent to a credit cost of 38bps vs. 44bps in 6M18. As at 2Q19, loans grew at a decent 4.6% yoy and 1.7% qoq. 6M19 NIM, which was down 9bps yoy to 2.24%, is expected to normalize in 2H19.

Absence of Dividend Reinvestment Plan (DRP) a Positive for EPS

Maybank has proposed a 25 sen cash-only interim DPS for 2Q19. Nonetheless, the final dividend’s composition is still subject to management’s decision and regulatory approval. Arguably, its robust CET1 ratio of 14.2% (post-dividend) supports the idea of a more active capital management, which could potentially re-rate the stock. With an allcash dividend payout, the dilutive impact on future EPS will be minimized, while ROE is likely to be enhanced. At this juncture, we keep our assumptions unchanged (loan growth of 3.4%, net credit cost of 47bps, CIR of 45.4%, NIM of 2.25% in 2019E), but make some minor adjustments on 2019-21E EPS by 0.7-2.4% due to share-base changes.

Maybank Revised Down ROE Target to 10.0-10.5% From 11%

Management has turned more cautious on 2H19’s outlook and revised down its ROE target to 10.0-10.5% (from 11.0%) while raising its net credit cost guidance to slightly above 40bps. We also observed an uptick in Maybank’s GIL, from 2.48% in 1Q19 to 2.64% in 2Q19. That said, there are government stimulus measures and spending in the domestic economy to sustain on-going developments while liquidity conditions remain accommodative.

Source: Affin Hwang Research - 30 Aug 2019