• 3Q20 net profit of RM1.95bn (-2.3% yoy; +107.3% qoq) and 9M20 net profit of RM4.9bn (-14% yoy) was above our and market expectations. 3Q20 saw recovery in NII and a substantial decline in provisions qoq.
• Though Maybank’s 9M20 NCC stood at an annualized 89bps (in-line with management’s full year guidance of 75-100bps), we expect 4Q20 NCC to remain elevated at an annualized 88-90bps (implying a provision of ~RM1bn).
• We revise our 2020E-23E earnings forecasts by 6-40% as we adjust for the better-than-expected fund based income and lower overheads. Maintain HOLD, with a higher TP of RM8.80. An interim DPS of 13.5sen was proposed in 3Q20.

9M20 operating results intact, excluding impact of ‘mod-loss’

Maybank’s 9M20 operating income remained relatively flat yoy, as the impact of lower 9M20 fund-based income (-5.3% yoy; due to net ‘mod-loss’ of RM314m and interest rate cuts) was mitigated by improved inon-interest income (driven by trading/realized gains in the bond market) and lower operating loss at the insurance unit. 3Q20 NIM recovered by 9bps qoq to 2.05% (given the lagged repricing of deposit cost and absence of the ‘modloss’) while 9M20 NIM declined 19bps yoy to 2.08%. Meanwhile, Maybank’s loanbook has remained flat yoy and ytd, due to repayments, cautious-lending stance and write-offs.

More buffers needed, in the event of a spike in default cases

We are of the view that additional buffers are required should there be a spike in default among the lower income (B40) and certain business/corporate customers. Our 2020E22E NCC assumptions remain unchanged at 88bps/77.5bps/50bps. Based on management’s guidance, about 15% of Malaysia’s loanbook is under relief/assistance/R&R programs, while Singapore at 11.3% and Indonesia at 20.8% (as at 12 Nov20). Maybank’s ECL allowances (RM11bn; Stage 1 at RM1.7bn and Stage 2 at RM2.8bn) and regulatory reserves of RM1.1bn appear sufficient to buffer against a 1% impairment of its loanbook value, but we think it is prudent for management to raise its LLC further above current level of 106.8%.

Maintain HOLD, Price Target revised to RM8.80 (from RM8.20)

We maintain our HOLD rating on Maybank, with a higher PT of RM8.80 (from RM8.20) (based on a 1.14x P/BV on CY21E BVPS) underpinned by a CY21E ROE at 7.8% and cost of equity of 7.2%. We revise our 2020E-23E earnings forecasts by +40.3%/+9%/+6.3% as we adjust for the higher fund based income (higher NIM from 2.0% to 2.1%) and lower overheads. Our underlying assumptions for 2020E23E: loan growth 0%-2% yoy, NIM at 2.1%-2.15%, CIR 50-52%. Downside/upside risks: higher/lower provisions.

Source: Affin Hwang Research - 30 Nov 2020