PT MAYBANK Indonesia (Maybank Indonesia) posted 9M17 net profit of IDR1,449b which improved by 12% 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.

Improving across the board. 9M17 earnings improved by 12% YoY to IDR1,449b as performances were healthy across the board. The improved performance was supported by falling impairment allowances of 15% to IDR1,340b. Top-line rose by 5.2% YoY to IDR7,868b as both fund and fee-based income registered commendable performance at 4% YoY and 8% YoY, respectively. The commendable fund based growth of 4% (YoY) was supported by better loans of 4% YoY and on better NIM which improved by 35bps to 5.2%. Better performance from fee-based income was driven mainly from gains in investment sales of 308% YoY to IDR478b as fee and commission income as well as forex gains fell by 34% YoY and 26% YoY, respectively. A blip in the 9M17 performance was higher opex of 8% YoY to IDR4,501b which pushed Cost-to-Income ratio (CIR) by 2ppts to 57%.

Better loans and NIM. Loans improved YoY by 80bps to 4% YoY (vs system loans of ~8% YoY) driven by consumer banking (+41% YoY) which contributed 40% of its loan book. Loans from corporate banking fell by 28% YoY and contributed 20% of its loan book (3Q16: 29%). Slight uptick in its Loan-to-deposit ratio (LDR) to 93% was recorded as loans outpaced deposits (+3.0% YoY vs system growth of ~9% YoY. On a positive note, despite deposits outpacing CASA growth (+2% YoY) CASA ratio was still strong and stable at 38%, which supported the high NIM. We also believed that the strong NIM was further supported by better asset pricing as average lending yields rose 25bps YoY vs falling cost of funds (COF) at -52bps YoY. Asset quality improved albeit slightly as gross impaired loans (GIL) fell by 3bps to 4% and with impairment allowances falling, credit cost was down by 36bps to 1.6%.

Slight improvement ahead. 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. We expect asset quality to be stable for FY17 with lower credit costs as the expected spike in NPL is unlikely to happen with stable interest rates and inflation cost under control. While loans growth has been challenging (we expect a growth of 3-4% YoY vs FY16: 5.6%) we expect better performance in NIM from better asset pricing and strong CASA.

No change in forecasts. Earnings forecasts for Maybank Group are left unchanged as Maybank Indonesia’s contribution to overall Group’s PBT is relatively small (FY16 and 1HFY17: <10%). As 3QFY17 results were poor with softer loans in 1H17, 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 9.0%, and (iii) terminal growth rate of 2.5%. Although there is a 2.6% upside to our TP, Maybank’s strong dividend yield of 5.7% should give a decent total return of ~8%; thus, we maintain our MARKET PERFORM rating.

Source: Kenanga Research - 31 Oct 2017