This article first appeared in The Edge Financial Daily on February 20, 2019
Malayan Banking Bhd
(Feb 19, RM9.48)
Reiterate sell with an unchanged target price (TP) of RM9.20: Maybank Indonesia held its financial year 2018 (FY18) results briefing on Monday via a teleconference. The bank reported a decent improvement in earnings for FY18, with profit before tax and profit after tax and minority interest rising 20.5% and 21.6% year-on-year (y-o-y) respectively. The stronger set of results was underpinned by a higher net interest income (NII) (+5.2% y-o-y) along with a 38.6% y-o-y decrease in provisions. Return on equity widened to 10.2% from 9.9% a year ago.
Overall asset quality strengthened, as the gross non-performing loan (NPL) reduced to 2.59% in December 2018 from 2.81% a year ago. Management noted that a better loan quality and a recovery from NPL accounts led to a lower cost of credit. The improvement was also the result of the sale in some corporate NPL accounts.
Total loans and advances grew 6.3% y-o-y, driven by community financial services (CFS) non-retail, which expanded by 10.9% y-o-y. CFS retail, which comprises auto loans and credit cards, widened at a less robust pace of 3.1% y-o-y. Dampening the segment’s growth prospects, mortgages are expected to register more gradual growth as the bank has recently recalibrated its business model. Growth in the global banking divisions also appeares to have improved, although growth has been muted by early repayments from several corporate customers. Global banking accounts for some 23% of total loans. Meanwhile, total customer deposits contracted by close to 4% as liquidity in the industry remained tight throughout 2018. Overall net interest margin (NIM) rose seven basis points (bps) y-o-y to 5.24% due to a disciplined pricing management.
Muting the improvement in NII, the non-interest income contracted by 17%. This resulted in an overall weaker gross operating income (-0.6% y-o-y) for the bank. Fee income slipped 2.6% y-o-y due to lower fees from non-loan-based products as well as lower gains on foreign exchange transactions.
Management foresees a better year ahead — in terms of loan guidance. For 2019, loan growth is projected to grow at a healthier pace of 9%-10% on the back of stable economic growth. Management continues to foresee potential increases in the policy rate in 2019, albeit at a lower pace compared with 2018. However, NIM may compress by some 15bps to 20bps during the year as the bank builds up on its liquidity buffers. On a positive note, asset quality is envisaged to remain benign, with overall credit cost maintained at about 95bps.
Challenges for the new financial year include various external geopolitical risks and higher political tension due to election year in Indonesia. In the meantime, management will focus on financing infrastructure projects. CFS non–retail, that is business banking and small and medium enterprises (SMEs) will continue to be the driver of growth for the bank. Elsewhere, the bank will continue to develop various competitive retail products to strengthen the CFS retail segment. Efforts to digitise the bank will also be of key priority in 2019. — TA Securities, Feb 19