PT MAYBANK Indonesia (Maybank Indonesia) posted a 3M17 net profit of IDR499b, improved by 11% YoY. No dividends were announced. Earnings forecasts for the Maybank Group are unchanged as Maybank Indonesia’s PBT contribution is still relatively small (FY16: ~9%). Pending the Group’s full-year results next month, our TP of RM9.17 is maintained but downgrade our call to UNDERPERFORM.

YoY improved on better operational efficiency. Core Net Profit improved by 11% to IDR499b driven by better Net Interest Income (NII) by 8% and lower impairment allowances by 10%. Top-line revenue was subdued at 3% dragged by fall in NOII at 12%. We believe the improvement in NII was attributed to better loan pricing and improvement in NIMs by 40bps to 4.5% as CASA was stable at 37%. The improved NII was mitigated by moderate loans (+3%) with deposits slower at 2%, which pushed Loan to Deposit ratio (LDR) higher by 50bps to 92%. Excluding the WOM Finance loans, loans growth would have registered 6% YoY. (Recall that the bank entered into a Conditional Shares Purchase Agreement to sell its entire stake of 68% in WOM Finance in Jan 2017). Asset quality was mixed as GIL inched slightly by 10bps to 3.8% but credit charge was lower by 24bps to 0.99%.

QoQ earnings dragged by deteriorating asset quality. On a quarterly basis, CNP was down by 22%, dragged by higher opex (209%) and impairment allowances of IDR268b (4Q16: IDR6b) but mitigated by improved top-line revenue of 72% to IDR2,108b. NII surged by 50%, driven by widening NIMs of 155bps to 4.5% as loans declined by 2%. Maybank Indonesia’s loans declined, dragged by fall in consumer and SME loans at -2% and -1%, respectively.

Softer consumer spending might see softer loan pricing. Earlier this year management guided for a cautious 2017 but expected to benefit from Indonesia’s infrastructure spending, Tax Amnesty bill and stable interest rates. Despite the conducive environment, consumer loans growth was still soft and we won’t be surprised if loan pricing becomes softer to entice consumer, thus putting further downside pressure on NIM. 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) coupled with the rebound in commodity prices & removal of electrical subsidy 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 still relatively small (FY16: ~9%).

Valuation retained, but rating revised. With forecast unchanged, we keep our GGM-TP of RM9.17 based on a 1.23x P/B FY18E. Assumptions adopted in our GGM-TP are: (i) COE of 7.4%, (ii) FY17E ROE of 8.5%, and (iii) terminal growth rate of 2.5%. As valuations look demanding with the recent surge in price coupled with potential return of less than 3% we downgrade our call to

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

Source: Kenanga Research - 2 May 2017