Maybank reported a 2019 net profit of RM8.2bn (+1% yoy), supported by a more robust 4Q19 net profit (+22.5% qoq and +5.3% yoy). Earnings were in line with consensus but above our forecast by 5.2% (variance was due to lower actual provisions). Maybank saw lower impairment allowances in 4Q19, which also propped up the 2019 profit. An all-cash final DPS of 39 sen for 4Q19 was proposed, but it may not be recurring. The key takeaways from the results: i) group loan growth was anaemic at 1.2% yoy due to lower overseas loan growth while domestic loans were up 4.9% yoy; ii) 2019 NIM compressed 6bps yoy to 2.27%, largely due to higher funding costs in Indonesia and Singapore, while asset yields in Malaysia were affected by the rate cut; and iii) 2019 net credit cost rose to 44bps vs. 32bps in 2018. Maintain HOLD, with a higher TP of RM8.50 from RM8.25.

Results Above Our Expectations; 2019 Net Profit Up 1% Yoy

Maybank’s 2019 net profit was RM8.2bn (+1% yoy), while the EPS was down 1.0% yoy (due to dilution effects of dividend shares). The stronger operating income (+4.6% yoy) in 2019 was largely driven by non-interest income (up 47% yoy), arising from realised gains from the fixed income portfolio. On the other hand, anaemic loan growth of 1.2% yoy (overseas loans -4.2% yoy; domestic loans up 4.9% yoy) was not a very positive sign, as this indicates weakness in external operations). Maybank’s asset quality also deteriorated in 2019, as indicated by a higher GIL ratio of 2.65% (at Group level) vis-à-vis 2.41% in 2018, driven by weaker asset quality from Singapore and Indonesia. Meanwhile, should the Covid-19 outbreak continue over a longer period (more than the 6-month moratorium for affected businesses, accounting for 3% of the loan book), we believe that its GIL ratio could see further deterioration.

Minor Adjustment to 2020-21 Net Profit Forecasts of Around -1%

We make minor adjustments to our earnings forecasts as we price in the negative impact of a 50bps rate cut while adjusting our net credit cost from 49-52bps to 44-45bps and factoring in higher investment gains, potentially to be realised from a favourable fixed income portfolio position.

Maintain HOLD; PT Lifted to RM8.50 From RM8.25

We maintain our HOLD rating with a higher TP of RM8.50, based on a 2020E target P/BV of 1.15x (from 1.16x; cost of equity at 9.1% and 2020E ROE of 9.5%), as we have removed the assumption of DRP share issuance in 2020E-22E, resulting in positive EPS adjustments for 2020- 21E. Downside risks: rise in credit cost; weaker loan growth.

Source: Affin Hwang Research - 28 Feb 2020