Maybank’s 9M18 results are in line despite weak top-line, mitigated by lower-than-expected impairment allowances. No change in forward earnings; thus, TP maintained at RM9.75 but call downgrade to MARKET PERFORM.

In line. 9M18 CNP of RM5.78b is in line, accounting for 77%/74% of our/market estimates. No dividend declared as expected.

Top-line affected by fee and fund-based income. YoY, 9M18 CNP of RM5,786m (+7.4%) was supported by lower opex (-4.3%) and lower impairment allowances (-18.9%) to RM1,450m as top-line was relatively flat (+0.2%) at RM17,329m. Islamic banking income continued tracking in the positive territory albeit moderating to +12.2% as both NII and NOII fell 1.8% and 5.5%, respectively. As expected, NOII was weak due to volatile capital markets (investment & trading income falling 98% to RM17m) despite net insurance premiums growing 16.1% to RM4,431m. Group loans (+4.5%) were below expectations of <5% (Group domestic loans at +4.9% vs system loans of +5.7%) with NIM down by 6bps to 2.3% (within guidance and expectations of -3bps). CIR of 47% is within guidance/expectations of <48%. Asset quality was mixed with GIL +15bps uptick to 2.65% but credit charge fell 8bps to 0.40% (below guidance/expectations of 45bps/50bps). Uptick in GIL mainly from Indonesia (+8bps to 4.1%) as domestic fell 2bps to 2.1%. 72% of these impaired loans are NPL (vs 9M17: 79%). QoQ, CNP of RM1,957m was flat, as top-line fell 3.2%, despite a steep fall in impairment allowances (-34.0%). As in Q2, Q3 saw falling NOII, with a slight uptick in NII (+0.8%) with Islamic income up by 3.2%. Group loans moderated by 70bps to +1.1% (dragged by foreign loans falling 2ppt to +1.7% as domestic loans were flattish). Due to moderation in liquidity buffer, COF moderated, leading to NIM widening to 2.3%. QoQ, GIL was relatively flat at 2.65% with credit charge falling by 13bps to 0.34%.

Consumer loans expected to be the driver as asset quality looking benign. Although loans target still looks challenging, Maybank expects a pick-up from domestic consumer by 4Q18. Moving forward, we view the key driver for its loans growth will be from consumer lending. The economy is expected to be stable with risks of unemployment low; thus, Maybank will continue to have a higher risk appetite from households. With OPR expected to be stable throughout 2019 coupled with stable employment, risk of deteriorating asset quality is benign, supporting the appetite for higher exposure in households. For Maybank Indonesia, improvement from corporate banking is expected due to lending to state-owned enterprises benefiting from being a supply chain to the on- going infrastructure projects. However, due to volatility and preserving asset quality, the group is unlkely to grow Maybank Indonesia ahe in an aggressive manner wil this Indonesian banking unit is likely to maintain earnings contribution at 7-8% to the Group earnings.

No change in earnings. As earnings are in line, our conservative estimates for FY18E/FY19E of RM7.49b/RM8.16 stay.

TP maintained. Reiterate TP of RM9.75 on a blended FY19E PB/PE of 1.23x/13.0x implying 1.0SD below the PB 5-year mean given the challenging loans and NOII growth. At current price, dividend yield is still the most attractive in our banking universe at >6.0%, but with potential total returns of <10%% we downgrade Maybank to MARKET PERFORM.

Other salient points

Our unchanged assumptions for FY18E/FY19E; (i) loans to grow at 4.8%/4.9% (unchanged), (ii) compression in NIM by 3bps for FY18E, flat for FY19E (both unchanged), and (iii) credit costs at 50bps/45bps (unchanged) for FY18E/FY19E and CIR at 48% (unchanged) for both financial years.

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

Source: Kenanga Research - 30 Nov 2018