Maybank share price to be rangebound in the near term

PT Bank Maybank Indonesia Tbk

KUALA LUMPUR: Maybank Bhd's share price, which has gained 15% year to date, will likely be rangebound in the near term as first half 2017 earnings were weaker than expected.

According to RHB Investment Research, the stock will continue to outperform the KLCI over the longer term as it is a key beneficiary of the country's strengthening economy. 

The research house maintains its Buy rating on the stock with a target price of RM10.40.

Maybank's second quarter 2017 results were a miss, with a 3% lower net profit of RM1.65mil quarter-on-quarter (q-o-q). FIrst half 2017 earnings of RM3.36bil were up 30% year-on-year (y-o-y), which accounted for 46% and 47% of RHB Investment Research's and consensus forecasts respectively.

Annualised H1FY17 return on equity was 9.6% which was short of management's target of 10% to 11%. 

Pretax profit was flat q-o-q as a 16% rise in fee-based income and tightly controlled expenses were offset by  a 53% q-o-q increase in loan provisions.

"Non-interest income (non-II) rose 16% q-o-q on higher commission and service fees, investment and trading income. Net fund-based income grew a modest 1% as gross loans dipped 1% and reported NIM -4bps," said RHB Investment Research.

Gross loans grew 6% y-o-y but fell 2% year to date mainly due to repayments of corporate loans.
 
"Its Malaysian book grew 1% YTD but fell 2% YTD in Singapore and -3% YTD in Indonesia. Deposits were flat y-o-y but -1% YTD, resulting in higher LDR of 92.2%. Still, group liquidity coverage ratio (LCR) improved to 146%. CASA deposits (without investment accounts) grew 0.5% YTD."

Absolute GILs rose 4% q-o-q, slowing from increases of 5% q-o-q in QFY17 and 8% q-o-q in Q4FY16. 

"Most of the sequential uptick in GIL came from oil & gas exposures in Singapore. GIL ratio was a higher 2.53% while LLC ratio dipped to 70.1% or 92.6% including regulatory reserves 

"The group’s oil & gas exposures have declined by 12% YTD to 3.89% of loans, but oil & gas NPL ratio has risen to 16%. Credit cost of 58bps in 1H17 exceeded management’s guidance of 50bps for FY17," the research house said.

It has trimmed forecast earnings by 8% for FY17 and 3% for FY18, taking into account management's guidance for higher-than-expected credit costs and after factoring in higher overhead expenses. 

"Management believes a loan growth target of 7% y-o-y is achievable, given the pipeline for corporate loans. NIM slippage is expected to be modest, with 13bps gain in 1H17 cushioning higher funding costs from deposit retention programmes to be carried out in 2H17."