PT MAYBANK Indonesia (Maybank Indonesia) posted 6M17 net profit of IDR998b, which improved by 16% YoY. No dividends announced as expected. Earnings forecasts for the Maybank Group are unchanged as we expect Maybank Indonesia’s FY17 PBT contribution to be small at <10%. Pending the Group’s full-year results next month, our TP of RM9.50 and MARKET PERFORM call are maintained.

Earnings YoY commendable boosted by healthy NIM and falling impairment allowances. Core Net Profit grew 16.3% to IDR998b which was commendable as top-line revenue grew +7.6% as impairment allowances fell 15.7% to IDR831b, mitigated by higher opex (+10.6%). Top-line was commendable as both fund and fee-based income registered commendable growth at +7.0% YoY and +9.1%, respectively. Net Interest Income (NII) was steady despite softer loans growth (+1.3%) owing to improvement in annualised NIM by 54bps to 5.5%, hence boosted NII’s performance. Higher opex was driven by General & Admin expenses, which expanded by 16% YoY, forcing Cost-to-Income ratio (CIR) inching higher by 2ppts to 58.0%.

Loans YoY subdued but asset quality seen improving. Loans were abysmal, growing at a mere 1.3% (vs system loans of ~+9%). Incidentally, the meagre growth was the lowest since 2Q15. However, stronger deposits growth (+5.0%) over loans pushed loan-to-deposit ratio (LDR) higher by 3ppts to 91.2%. On a sombre note, CASA was flat (-0.4%) prompting CASA ratio to fall by 2ppts to 37.3%. We believed the strong NIM performance was driven by better asset pricing as average lending yields rose 45bps YoY. Asset quality improved albeit slightly as gross impaired loans (GIL) fell by 6bps to 3.6% and with impairment allowances falling, credit cost was down by 34bps to 1.5%.

2H17 looking challenging. Earlier this year, management guided for a cautious 2017 and expected to benefit from Indonesia’s infrastructure spending, Tax Amnesty bill and stable interest rates. While interest rates are stable, the expected pick-up in infrastructure spending is still wanting, hence the poor performance of business lending. While we are encouraged by the strong consumer spending on the back of stable interest rates and commodity prices, we are cautious as consumer sentiment is weak ahead due to slower economic activities due to higher inflation expected abetted by spike in interest rates (due to rise in US interest rates) coupled with the removal of electrical subsidy that could lead to a spike in NPLs.

No change in forecasts. Earnings forecasts for Maybank Group are left unchanged as Maybank Indonesia contribution to overall Group’s PBT is relatively small (FY16 and 1QFY17: ~9%). As 6M17 results were in line with our estimates (49%) we are inclined to believe that Maybank Indonesia’s pre-tax contribution will be <10% of the Group’s FY17 pre-tax.

Valuation and rating retained. With forecasts unchanged, we keep our GGM-TP of RM9.50 based on a 1.27x P/B FY18E. Assumptions adopted in our GGM-TP are: (i) COE of 7.5%, (ii) FY17E ROE of 8.8%, and (iii) terminal growth rate of 2.5%. Although there is a 1.6% downside to our TP, Maybank’s strong dividend yield of 5.4% should give a decent total return of ~4%, thus we maintained our MARKET PERFORM rating.

Other salient points

QoQ earnings were flat dragged by higher impairment allowances. Earnings were flat from the preceding quarter, inching marginally +0.2% QoQ. While top-line revenue was spectacular at +51.1% QoQ, higher impairment allowances (+110.5% QoQ) of IDR563.2b and higher tax rate by 4ppts to 28.2% mitigated top-line excellent performance. On a positive note, NII jumped 29.8% QoQ despite softer loans (+1.0% QoQ), boosted by surging NIMs by 141bps to 6.0% (from our estimation). Loans were soft (+1.0% QoQ) dragged by commercial and corporate banking both falling by 2.0% respectively. Although GIL credit costs surged ahead by 108bps, GIL was down by 15bps indicating a potential up-cycle in Non-Performing Loans due to the soft economy.

6M17 vs 6M16 (other highlights)

• Fee-based income was driven by other fee incomes (+45% YoY to IDR1,120.3b) with fee & commission income and net gain of on sale of trading securities & financial investments falling by 56% to IDR39b.
• Loans were driven by consumer banking (+37% YoY) but dragged by dragged by corporate banking (-9% YoY).
• Tier and Capital ratio still robust at 13.7% and 16.9%, respectively (Improved by 110bps and 100bps respectively).
• Annualised ROE up by 10bps to +10.4%

Risks to our call are: (i) constricting 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 - 31 Jul 2017