INVESTMENT HIGHLIGHTS

• PATAMI for 9MFY17 grew +12.9%yoy due to lower provisions

• The lower provisions moderated the impact of higher OPEX

• NII growth came from lower interest expense

• Loans growth was steady driven from corporates and Islamic loans

• Asset quality stable

• No change in our forecast for Maybank Group

• Maintain BUY with unchanged TP to RM10.30 based on PB multiple of 1.4x

Double digit PATAMI growth from lower provisions. Maybank Indonesia recorded 9MFY17 PATAMI growth of +12.9%yoy to IDR1.48t. This was mainly due to higher income growth where it grew +5.2%yoy to IDR7.87t and lower provisions where it fell -15.1%yoy to IDR1.35t.

Lower provisions moderated impact of higher OPEX. The lower provisions moderated the impact of the higher OPEX to income. CI ratio increased +2.1ppt yoy to 57.5% as OPEX grew +9.3%yoy to IDR4.52t. The higher OPEX was due to increased general & admin cost and personnel cost. Both of these grew +12.2%yoy and +3.5%yoy to IDR2.62t and IDR1.87t respectively. As a result of 9MFY17 PPOP was flat at +0.2%yoy growth to IDR3.35t.

Growth in NII and NOII. We believe that the +4.3%yoy growth in NII was due to better funding cost management given that interest expense fell -4.8%yoy to IDR5.36t, while interest income was flattish at -0.3%yoy to IDR11.08t. This was despite CASA growing at a slower rate (+2.3%yoy to IDR45.18t) vs. fixed deposits (+3.4%yoy to IDR73.87t). It is possible that Maybank Indonesia managed to secure more favourable pricing for its deposits with NIM stable at 5.2%. Meanwhile, NOII also contributed to income growth due to better trading income (+306.6%yoy to IDR478b) and other fee income (+3.3%yoy to IDR1.15t)

Corporate and Islamic loans led gross loans growth. Gross loans growth as at 3QFY17 picked up at +3.7%yoy to IDR110.49t (vs. +1.3%yoy as at 2QFY17). The gross loans growth was led by strong expansion in corporate and Islamic loans. These two segments grew +14.0%yoy to IDR21.91t and +35.3%yoy to IDR14.01t respectively. This had supported the decline in other segments namely auto, mortgage and credit card segment where it fell - 18.4%yoy, -15.9%yoy and -5.5%yoy to IDR9.52t, IDR9.31t and IDR2.17t respectively. In our opinion, the decline in some key segments was due to portfolio rebalancing via reduction in exposure in troubled segment in order to preserve asset quality.

Asset quality improved. Asset quality improved as gross NPL fell by -10bps yoy to 3.87%. This could be a sign that situation may be improving in Indonesia. However, we believe that it still at an elevated level. It was also able to reduce provision expenses by -15.1% to IDR1.35t in 9MFY17.

FORECAST

Pending the announcement of the Group's 2QFY17 result, we make no change to our forecast for now.

VALUATION AND RECOMMENDATION

We believe that the result from Maybank Indonesia will continue to provide a boost to the Group’s result. Our concern is that the increased OPEX had affected its operational profit. While the lower provisions moderated its impact, we recognize that the Group may have to address it sooner rather than later. However, taking everything into consideration, we are optimistic on the Group’s prospect given that we expect lower provisions and the potential to maintain the momentum of loans growth and quality deposits growth. As such, we maintain our BUY call with unchanged TP of RM10.30 as we peg FY18 BVPS to 1.4x.

Source: MIDF Research - 31 Oct 2017