This article first appeared in The Edge Financial Daily on May 3, 2019

Malayan Banking Bhd
(May 2, RM9.25)
Maintain buy with an unchanged target price of RM11.40: Maybank Indonesia’s first quarter of financial year 2019 (1QFY19) net profit declined 10.4% year-on-year (y-o-y) to 415 billion rupiah (RM120.5 million). The contraction was due to increased provisions, which grew 52.2% y-o-y to 401 billion rupiah. Nevertheless, the higher provisions were due to Maybank Indonesia’s conservative stance in which it set aside provision for business loans which were impacted by the continued challenging economy.

While the provisions were higher, asset quality continued to improve. Gross non-performing loan ratio fell 13 basis points y-o-y to 2.89%. In terms of operations, net interest income (NII) grew strongly, expanding 7.7% y-o-y to 2.04 trillion rupiah, due to a 6.9% y-o-y increase in interest income to 3.85 trillion rupiah. As a result, pre-provision operating profit grew 7.6% y-o-y to 972 billion rupiah despite a 5.1% y-o-y increase in operating expenditure.

Gross loans saw robust growth of 10.9% y-o-y to 135.8 trillion rupiah, which we believe was the main contributor to the strong NII growth. Loan growth was supported by corporate and syariah loans which grew 34.8% y-o-y to 26.9 trillion rupiah and 22% y-o-y to 24.7 trillion rupiah respectively. The loans were extended to state-owned enterprises and top-tier corporates. — MIDF Research, May 2