MAYBANK : BUY at RM7.97, with TP raised to RM9.90

Maybank expect positive surprises

Malayan Banking Bhd
(Aug 18, RM7.97)
Maintain buy at RM7.97 with target price raised to RM9.90 (from RM9.10): Even after stripping out one-off items, we expect Maybank to post strong non-interest income for 4Q2010, which could be the key earnings driver for FYJune10. Non-interest income is likely to come from fee and commission income and insurance. Every 4Q, Maybank transfers about RM150 million to RM200 million life insurance surplus funds to shareholders’ funds. The volatile items remain forex and MTM gain/loss for trading securities and derivatives.

We raise FY2010/12F earnings by 5% to 10% following the stronger non-interest income. Maybank is due to release its results Friday with a net profit of RM1 billion to RM1.1 billion, and we expect final dividends. We assume 40% payout ratio (low end of 40% to 60% guidance), leading to 19 sen final dividend per share (declared 11 sen interim DPS in 2Q2010).

BII’s earnings disappoint, but still small relative to Maybank group. BII’s 2Q2010 results released on July 30 reported 43% quarter-on-quarter (q-o-q) drop in earnings mainly due to higher provisions. But loans surged 17% q-o-q (higher than most Indonesian peers), led by the SME and consumer segments. Meanwhile, its NPL ratio has inched up, so we will keep an eye on BII’s asset quality.

We reiterate “buy” and raise our target price (TP) to RM9.90 after rolling forward our valuation base to CY2011. Our TP is equivalent to 2.3 times CY2011 BV, and based on the following Gordon Growth Model assumptions: 16% sustainable return on equity, 7% long-term growth and 10.8% cost of equity. Key catalysts include: (i) NIM improvement following OPR hikes, (ii) better performance at BII, and (iii) build-up of Malaysian capital markets and treasury capabilities. — HwangDBS Vickers Research, Aug 18


This article appeared in The Edge Financial Daily, August 19, 2010.