INVESTMENT HIGHLIGHTS

• Lower PATAMI moderated by lower provisions

• Better asset quality

• NII declined on possible pricing competition

• CASA led deposits growth moderated potential pressure on margins

• No change in our forecast for Maybank Group

• Maintain BUY with unchanged TP to RM11.20 based on PB multiple of 1.6x

Lower provisions saved the day. Maybank Indonesia 1QFY18 net profit was -5.5%yoy lower on lower income and higher OPEX. However, it the decline was moderated by lower provisions which fell - 26.5%yoy to IDR263b.

Better asset quality. We are not surprised that provisions came in lower. This was due to the fact that asset quality continued to improve. Gross NPL stock fell -16.9%yoy to IDR3.41t, while gross NPL ratio improved -70bps yoy to 3.0%. We believe that this was due to continuing improvement in Indonesia and the Bank's move to focus on better quality asset.

Potential price competition affecting NII. We understand that the competition in loans pricing had intensified which we believe had affected NII. For 1QFY18, NII was flattish with -0.5%yoy decline as interest income fell -2.3%yoy. Besides tepid loans growth of +1.6%yoy to IDR109.8t, we believe it was also due to lower margins. However, the pressure on NII was moderated by lower interest expense which fell -4.2%yoy.

CASA led deposits growth, Islamic financing led loans growth. Deposits grew +2.7%yoy to IDR120.9t and was led by CASA, which grew +9.9%yoy to IDR48.0t. Time deposit fell -1.5%yoy to IDR72.9t. We opine that this contributed to the lower interest expense. Meanwhile, gross loans growth was led by Islamic financing which grew +41.5%yoy to IDR20.2t as corporate loans fell -9.4%yoy to IDR20.0t and SME loans flat at -0.1%yoy to IDR19.3t.

Higher OPEX a slight concern. OPEX grew +4.3%yoy due to higher admin & general expenses and more concerning, higher personnel cost (+5.8%yoy). Our concern is based on the worry of a runaway personnel cost. However, we do not believe that this is the case at this juncture.

FORECAST

Pending the announcement of the Group's 1QFY18 result, we make no change to our forecast for now.

VALUATION AND RECOMMENDATION

We are disappointed with the result posted by Maybank Indonesia as we had anticipated it to provide a boost to Group's earnings. However, we expect that its net profit growth should recover in the coming quarters due to active funding management, which may ease NIM compression pressures. In addition, we expect the Group's main driver will still be Malaysia and we do not believe that there is any indication that points towards stress in earnings growth. As such, we maintain our BUY call with unchanged TP of RM11.20 as we peg FY18 BVPS to 1.6x.

Source: MIDF Research - 30 Apr 2018