Maybank’s 12M18 results are in line despite soft top-line, mitigated by lower-than-expected impairment allowances. Slight change in forward earnings; thus, TP raised to RM10.20 (ascribing to a higher target PBV). Upgrade call to OUTPERFORM.

In line. 12M18 CNP of RM8.11b exceeded our/in line with market accounting for 108%/105% of our/market estimates. The positive deviation from our estimate was due to lower credit costs of 42bps (vs our estimate of 50bps). A final DPS of 32.0 sen was declared bringing total DPS of 57.0 sen (vs our expectation of 54.0 sen).

A soft top-line due to fee-based income. YoY, 12M18 CNP of RM8,113m (+8%) was supported by lower impairment allowances (- 19%) to RM1,591m as top-line was soft (+1.6%) at RM23,629m. Islamic banking income was still in the positive territory albeit moderating at 14%, but both NII and NOII fell at 0.6% and 4.4%. Due to the weak capital markets, net insurance income contributed 17% (vs FY17: 3%) to NOII. Group loans at +4.8% (vs guidance/estimates of <5%/4.5% with domestic loans at +4.8% vs system loans of +5.6%. NIM fell by 4bps (vs guidance/expectations of -3bps. CIR of 48% was in line with estimates/guidance of 48% vs industry of 47%. Asset quality was mixed with GIL at +7bps uptick to 2.41% but credit charge fell 9bps to 0.31% (below guidance/expectation of 45bps/50bps).

QoQ, was a good ending for the year as CNP surged 9% to RM2,236m underpinned by surging top-line (+11%) and lower impairment allowances of RM162m (-57%). Top-line was driven by rebound in NOII (+33%) to RM1,693m as net insurance income rebounded 31% to RM532m. Loans at +1.9% Q4 was the strongest performance for the Group with NIM improving +5bps on stronger asset yields and price discipline. Q4 saw better asset quality as GIL fell 24bps to 2.4% with credit costs at 6bps vs 34bps in Q3.

Softer targets as uncertainties prevail. Management gave a cautious outlook for 2019; thus, its guidance was soft with: (i) ROE at ~11%, (ii) CIR at 47%, (iii) NIM compression of 3-5bps, and (iv) credit costs at 40bps. Our assumptions are; (i) ROE at ~10.5% (10% previously), (ii) CIR at 47% (unchanged, (iii) NIM compression of 3bps (from flat previously), (iv) credit costs at 40bps (from 45bps), (v) loans <5% (unchanged), and (vi) flat NOII (vs +5% YoY previously).

Slight change in earnings for FY19E. Our FY19E earnings are raised slightly 1% to RM8.24b in the face of a moderate economy and volatile capital markets. We introduced our FY20E earnings, where we expect challenging growth due to higher credit charge.

TP and Call revised upwards. Our TP is now raised to RM10.20 (from RM9.75) based on a target PBV of 1.35x (previously 1.27x) implying a 0.5SD below mean (from 1.0SD below) to reflect better asset quality and lower impairment allowances ahead. At current price, dividend yield is still the most attractive in our banking universe at >6.0% and coupled with lower impairment allowances, we upgrade our call to OUTPERFORM.

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

Source: Kenanga Research - 27 Feb 2019