• Maybank’s 2Q20 net profit of RM941.7m (-51.5% yoy; -54.1% qoq) was within our expectation, with 1H20 net profit accounting for 61% of our estimate of RM4.87bn. Underlying net profit (excluding the net modification loss impact of RM314m) stood at RM1.18bn (-39.2% yoy; -42% qoq).
• The quarters ahead remain uncertain, as we see potential downside risks on earnings from: i) continual proactive provisions; and ii) further rate cuts (25bps to 50bps).
• We maintain our 2020E-22E earnings forecasts. Maintain HOLD and PT of RM8.20. No interim dividends were proposed for 2Q20 (vs. 25 sen in 2Q19)

1H20 core operating results were intact, excluding impact of ‘mod-loss’

Maybank’s 1H20 core operating income grew 10.6% yoy, with fund-based income up 4% yoy (excluding a net ‘modification-loss’ of RM314m) while non-interest income was up 2.8% yoy (driven by trading/realized gains in the bond market). Other key takeaways: i) 2Q20 NIM slipped 28bps qoq and 24bps yoy to 1.95% while 1H20 NIM stood at 2.09%. Excluding the net ‘mod-loss’ impact, 1H20 NIM would have been at 2.17% (-7bps yoy); ii) loans were flat ytd; iii) 2Q20 annualized net credit cost (NCC) was at 133bps vs. 73bps in 1Q20 and 30bps in 2Q19 while 1H20 NCC was at 103bps (includes RM500m of macro provisions (38.5bps), RM1bn in overlays (84.7bps)) vs. 38bps in 1H19.

What to Expect Ahead? Downside Risks to Earnings Remain Down the Road

Downside risks to Maybank’s earnings remain, from: i) continual proactive provisions, as delinquencies may rise for borrowers in the vulnerable sectors, after the loan moratorium period ends by Sept20. Nonetheless, management will assess every R&R account on a case-to-case basis, on whether or not it will trigger a significant increase in credit risk (from Stage 1 to Stage 2). This is related to RM38bn worth of loans under close scrutiny; ii) any further rate cuts. Maybank’s NIM may see a 3bps compression for every 25bps rate cut (net profit impact at –RM180m). Management has set its ROE target at 7.5% for 2020 (from 10-11%) while expecting a 20bps NIM compression yoy and maintaining the NCC guidance at 75-100bps.

Maintain HOLD, Price Target Unchanged at RM8.20

We maintain our HOLD rating on Maybank, with a PT of RM8.20 (based on a 1.1x P/BV on CY21E BVPS) underpinned by a CY21E ROE at 7.4% and cost of equity of 7.0%. We maintain our 2020E-22E forecasts. Our underlying assumptions for 2020E: loan growth flat, NIM at 2.0%, net credit cost at 89bps, CIR 52%. Downside/upside risks: interest rate cuts/hikes; higher/lower impaired loan provisions.

Source: Affin Hwang Research - 28 Aug 2020