INVESTMENT HIGHLIGHTS

• PATAMI continued to be dragged by provisions coming from a few individual accounts

• NOII grew +14.1%yoy leading the income growth of +4.8%yoy

• Loans growth supported by corporate loans while deposits grew faster pace as it built up liquidity buffer

• No change in our forecast for Maybank Group

• Maintain BUY with unchanged TP to RM11.00 based on PB multiple of 1.5x

Continued to be dragged by higher provisions. Maybank Indonesia 1HFY19 net profit declined -19.5%yoy to IDR781b despite PPOP expanding +2.1%yoy. The decline was due to continued higher provisions in 2QFY19 which grew +42.4%yoy. As a result 1HFY19 provisions grew +46.3%yoy.

Individual accounts main cause for higher provisions. Maybank Indonesia took a conservative stance as it set aside provision for business loans affected by the continued challenging market conditions. We understand that the increased provisioning was mainly due to a few specific names in the commercial segment. As such, gross NPL went up +27bps yoy to 3.06%.

NOII drove income growth. NOII expanded +14.1%yoy due to higher gains in forex at >100%yoy to IDR107.0b. Moreover, there was a reversal to gain on trading and financial investments (IDR66.3b from loss of IDR10.1b in 1HFY18).

Higher OPEX due to incentives. OPEX grew +6.5%yoy due to the incentives paid for mudharabah deposits which grew by 111.7%. However, this was moderated by the decline in personnel cost of - 1.8%yoy to IDR1,265b.

Loans grew but also built up higher liquidity buffer. Gross loans increased by +6.6%yoy to IDR135.4t. Corporate loans continued to be the main contributor with +41.9%yoy growth to IDR20.5t. However, Maybank Indonesia also built higher liquidity buffer as deposits from customers grew +10.1%yoy to IDR125.2t, with most coming from time deposits (+25.7%yoy to IDR86.2t). This was to ensure sufficient liquidity to mitigate any unforeseen risks during and post the general elections. This had caused NIM to contract by 28bps to 4.8%.

No change to forecast. Pending the announcement of the Group's 2QFY19 result, we make no change to our forecast for now.

VALUATION AND RECOMMENDATION

Maybank Indonesia’s earnings continue to be a disappointment as we had anticipated it to provide a boost to Group's earnings. However, we understand that this is due to the conservative stance that it took. Operationally, Maybank Indonesia remains solid as evident by its PPOP growth. For the Group, we opine that Malaysia will be the key driver this year. We maintain our BUY call with unchanged TP of RM11.00, pegging its FY20 BVPS to PBV of 1.5x. Moreover, a dividend yield of above 6% should mitigate any downside risk.

Source: MIDF Research - 1 Aug 2019