- Missed expectations. 2Q16 net profit of RM1.16bn (qoq: -18.7%; yoy: -26.8%) brought 1H16 net profit to RM2.59bn (-21.3%), accounting for only 38.8-40.5% of our and consensus full-year forecasts.
- Impairment on a corporate bond, lower-than-expected NOII and higher-than-expected credit cost.
- Declared interim DPS of 20 sen (vs. 24 sen in 1H15), of which 16 sen is under DRP and 4 sen cash.
- Annualised 1H16 ROE of 8.3% fell short of targeted ROE of 11-12%, mainly on higher credit cost and lower loans growth (4.3% vs. target of 8-9%).
- QoQ… 2Q16 net profit declined by 18.7% to RM1.16bn as 2.1% loan growth was more than negated by lower NOII (arising from lower fee income, forex losses and higher impairment loss on a corporate bond) and higher provisions.
- Credit cost in 1H16 rose to 41.2bps from 13.1bps in 1H15, on higher IA and CA. Despite the spike in credit cost, management is keeping to its guidance of 40-50bps for the full-year, as it expects credit cost to trend lower in 2H arising from the pragmatic measures taken in 1H16.
- Asset quality deteriorated further… With GIL ratio increasing to 2.34% from 2.11% in 1Q16 and 1.56% in 1Q15, mainly on the back of an increase in R&R loans, particularly within the business and corporate banking segments in Malaysia and Singapore, which GIL ratios increased to 2.23% and 1.38% from 1.83% and 1.28% in 1Q16. Asset quality in Indonesia improved with GIL ratio declining to 3.99% from 4.21% 1Q16.
- 4.2% exposu re in O&G sector… of which bulk of the exposure comes from upstream (43%) and supporting upstream (34%) segments.
- The recent 25bps reduction in OP R will impact Maybank’s earnings by circa RM60m (on full-year basis).
- Unexpected jump in impaired loans, lower than expected loan growth and significant slowdown in capital market.
- We tweak our FY16-17 net profit forecasts lower by 10.1% and 4.7% respectively, to reflect RM200m impairment on corporate bond and lower NOII assumptions.
- Positives – Improving domestic operations and expanding regional footprint, new divisions to better address competition and customer centric and new IB outfit gaining traction. DRP provides downside protection while giving additional boost (from the discount pricing of DRP) to industry leading dividend yield.
- Negatives – DRP will drag ROE, deterioration in Indonesia asset quality (but BII is only a small contributor of profit ) and drag from subdued capital markets.
- Post earnings adjustments, Gordon Growth-derived target price lowered by 8.8% to RM8.51 (based on ROE and WACC of 10% and 8.8%). Maintain BUY
MAYBANK (1155) - Malayan Banking - Hit by impairment & higher R&R
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