• Maybank’s 4Q20 net profit of RM1.54bn (-37.1% yoy; -21.3% qoq) and 2020 net profit of RM6.48bn (-20.9% yoy) were within our and market expectations. The flat operating income line was eroded by sharply higher ECL allowances
• Management’s guidance for 2021 -- flat NIM at ~2.1%, NCC of 70-80bps, CIR of 46-47% and ROE of 9% -- is largely in line with our assumptions
• We maintain our 2021E-22E earnings forecasts and introduce the 2023E forecast. A final DPS of 38.5 sen was proposed in 4Q20. Upgrade to BUY on valuation grounds, TP unchanged at RM9.40 based on a 1.24x P/BV target

2020 Operating Results Intact, Driven by Recovery in 2H20

Maybank saw further increases in 4Q20’s expected credit loss (ECL) allowances (on a qoq basis) due to more macro provisions. For the full year, net credit cost (NCC) rose to 88bps from 44bps, and approximately half of the ECL allowances were pre-emptive in nature. Meanwhile, 2020 operating income was supported primarily by income from the insurance business as well as investment income/trading gains, which helped to mitigate the impact of lower fund-based income (-4.9% yoy). In 2020, NIM declined 17bps yoy to 2.1% due to the impact of the ‘mod-loss’ and rate cuts. Maybank’s loanbook has remained flat yoy, largely due to corporate repayments and cautious lending.

Marginal earnings recovery in 2021; management’s guidance remains conservative

Management continued to exercise caution especially for individual borrowers under the financial assistance/relief/R&R programs, which made up circa 10-11% of Maybank’s outstanding loans as at Dec20. As we expect business and consumer sentiment to gradually recover, default risk could be mitigated as more economic activities resume. That said, management’s guidance for 2021 remains conservative, with NCC expectation at 70-80bps, CIR at 46-47%, a flat NIM and a 9% ROE.

Upgrade to BUY, Price Target Unchanged at RM9.40

We upgrade Maybank to BUY on valuation grounds, with our 12-month TP unchanged at RM9.40 (based on a 1.24x P/BV on CY21E BVPS) underpinned by a CY21E ROE of 7.9% and cost of equity of 7.0%. For 2021E, Maybank’s earnings is expected to recover by ~4% yoy given lower NCC (at 79bps) and absence of mod-loss. Our underlying assumptions for 2021E/22E/23E: loan growth of 2% yoy, NIM at 2.1%-2.11%, CIR at 47- 49%, NCC at 79bps/50bps/49bps. Downside risks: interest rate cuts; higher NPL rates from the targeted assistance program.

Source: Affin Hwang Research - 26 Feb 2021