Maybank Indonesia’s earnings growth meets expectations

PETALING JAYA: The 30% earnings growth of Malayan Banking Bhd’s (Maybank) Indonesian arm for the first quarter ended March 31 came largely in line with market expectations.

Analysts noted that the net profit posted by PT Bank Maybank Indonesia Tbk (Maybank Indonesia) during the three months in review accounted for about 30% of their full-year forecasts for the unit. They, however, acknowledged there were still challenges ahead for Maybank Indonesia.

Hong Leong Investment Bank (HLIB), for instance, said the company would likely see higher loan loss provision in the coming quarters as a result of the Covid-19 pandemic.

“Maybank Indonesia grew 30% year-onyear, thanks to lower bad loan allowances. If not for this, pre-provision profit would have gone up by only 5%, we believe loan loss provision will rise more in subsequent quarters due to the impact of Covid-19 crisis,” the brokerage pointed out in its report yesterday.

Commenting on the outlook, HLIB said Indonesia will also be economically hit by the Covid-19 crisis in 2020.

“Loans growth is expected to taper and the multiple rate cuts (twice so far this year) will continue to exert pressure on net interest margin (NIM).

“Also, we see asset quality deteriorating further; that said, non-performing loans is unlikely to spiral out of control (at least for this year) since Otoritas Jasa Keuangan (government agency that regulates and supervises the financial services sector) has relaxed the debt quality assessment and restructuring requirements on affected borrowers,” it explained.

Following the first quarter results of the Indonesian unit, HLIB maintained its “hold” rating on Maybank, with an unchanged target price of RM7.20.

It noted the stock’s risk-reward profile was balanced by its muted loans growth and lacklustre asset quality.

UOB Kay Hian also maintained “hold” on Maybank, with an unchanged target price of RM7.70, noting the stock was currently trading at a premium to sector’s 0.84 times priceto-book value despite similar return on equity.

Public Investment Bank cautioned that Maybank Indonesia’s asset quality indicators were not as encouraging, with gross non-performing loans and gross impaired loans ratios higher during the quarter.

“While group management remains relatively sanguine on near to medium-term prospects and appears to have the potentially negative impacts of the Covid-19 pandemic well under control, we err on the side of conservatism and take a slightly more pessimistic stance on asset quality, while also factoring in lower loans growth assumption,” the brokerage said.

Maybank Indonesia on Tuesday said its gross non-performing loans rose to 3.6% for the first quarter of 2020 from 3.3% in the fourth quarter of last year, while gross impaired loans stood at 5.04%. Its NIM improved to 4.96% at March 2020 from 4.81% last March.

Public Invest cut its earnings estimates for Maybank group by 3.7%-5.3% for 2020-2022.

It also lowered its target price for Maybank to RM7.50 from RM7.90 previously, but maintained its “neutral” call on the stock.

“While the overall Maybank group has seen some levels of success in certain key growth initiatives, near-term earnings potential is still likely to be hampered by margin compressions and asset quality challenges,” Public Invest explained.