PT MAYBANK Indonesia (Maybank Indonesia) posted a 12M16 net profit of IDR1,934b, up by 55% YoY. No dividends were announced. Earnings forecasts for the Maybank Group are unchanged as Maybank Indonesia’s PBT contribution is immaterial (FY15: ~ 4%). Pending the Group’s full-year results next week, our TP of RM8.04 and MARKET PERFORM call are maintained.

Net Profit surges ahead .12M16 core net profit surged ahead by 55.3% bolstered by better fund-based income and lower loan loss provisioning mostly in the 4Q. Improvement in top-line was at +9.1% YoY driven by improvement in both Net Interest Income (NII) (+10.8% YoY) and Non-Interest Income (NOII) (4.2% YoY). Better NII was attributed to better loan pricing and active fund management with improvement in NIMs by 30bps to 4.4%. However, on a yearly basis, both loans and deposits were slower at +5.6% YoY and 3.0% YoY, respectively (FY15: +6.3% YoY and +13.4% YoY, respectively). With loans outpacing deposits, loan-to-deposit ratio (LDR) jumped 220bps to 92.5%. Cost to Income ratio (CIR) improved by 370bps to 52.1% despite operating expenses ticked slightly higher by +1.9% (due to personnel growth) YoY as total income outpaced operating expenses. Asset quality continued to improve as Gross Impaired Loans Ratio (GIL) fell 21 bps to 3.4% with credit costs decreasing by 46bps to 1.5%. With improvement in earnings, ROE was 2ppts higher at 10.5%.

Outlook seems descent, but challenging. Management guided for a cautious 2017 being a beneficiary of the infrastructure spending and stable interest rates. This will be aided by the Tax Amnesty Bill, the effect expected to be felt in 2H17 benefiting the property and infrastructure sectors. We expect NIMs to improve due to better loan pricing and realigning of its portfolio. Although asset quality is expected to prevail as management continues managing down its exposures from sensitive portfolios, higher inflation abetted by spike in interest rates (due to rise in US interest rates) could still lead to a spike in NPLs upwards.

No change in forecasts. Earnings forecasts for Maybank Group are left unchanged as BI’s contribution to overall Group’s PBT is immaterial (FY 15 and 9M16: ~4%).

Valuation and rating unchanged. With forecast unchanged, we keep our GGM-TP of RM8.04. This is based on a 1.08x P/B FY17E (from 1.13x FY17 P/B). The lower P/B multiple is to reflect slower growth and weaker ROE generation moving forward. Assumptions adopted in our GGM-TP are: (i) COE of 8.6% (vs. 8.7% previously), (ii) FY17E ROE of 9.1% (vs. 9.5% previously), and (iii) terminal growth rate of 2.5% (unchanged). We maintain our MARKET PERFORM call pending the Group’s 4Q16 results next week.

Risks to our call are: (i) lower-than-expected margin squeeze, (ii) higher-than-expected loans and deposits growth, (iii) worse-thanexpected deterioration in asset quality, (iv) further slowdown in capital market activities, and (v) adverse currency fluctuations.

Source: Kenanga Research - 17 Feb 2017