Maybank rose 13 sen to RM5.85 and added 2.1 points to the KLCI on Feb 4, 2016. STAR
KUALA LUMPUR: CIMB Equities Research is retaining an Add for Malayan Banking Bhd
(Maybank) based on an earnings recovery, regionalisation and expansion and tagged a target price of RM9.20.
The research house said on Friday that Maybank, Southeast Asia’s fourth largest bank by assets, would benefit from a recovery in earnings contribution from Indonesia and also the ongoing regionalisation of its operations. Another factor would be the regional expansion of its insurance and Islamic banking businesses.
“We view the drop in 3Q16 loan loss provision (LLP) positively and the management is guiding for a further reduction in LLP in 4Q16. The downside risks to our target price include a spike-up in credit costs and wider-than-expected margin erosion,” it said.
CIMB Research pointed out although the 9M16 net profit only accounted for 68% of its full-year forecast, it regards the results as in line on anticipation of stronger 4Q16 earnings from an expected one-off gain from the sale of shares in Visa Inc and lower provisioning.
“Based on the same reasoning, the results would have been above market expectations at 73.2% of consensus,” it said.
The key highlight for 3Q16 was the normalisation of the LLP from RM800mil to RM1bil (US$180mil to RM224mil) in 1Q-2Q16 to RM370mil (US$83mil) in 3Q16.
“We are also encouraged that the net interest margin only dipped by one basis point on-quarter to 2.22% in 3Q16 despite a rate cut in July 2016, thanks to the bank’s active asset-liability management to limit the margin compression. However, 3Q16 net profit fell 5.4% on-year due to stalled loan growth and lower foreign exchange income (from higher base last year).
CIMB Research pointed out that after a rise in the preceding three quarters, Maybank’s gross impaired loan (GIL) ratio fell from 2.34% in June 2016 to 2.22% in September 2016 while loan loss coverage strengthened from 70.5% to 74.8% over the same period.
“The positive take from the conference call was the management’s guidance for an even lower credit cost in 4Q16 (vs. 3Q16). On the flip side, we are negative on the management’s downward revision of its targets for FY16 – from 11%-12% to 10.5-11% for return on equity and from 8-9% to 2-3% for overall loan growth.
“We cut FY16-18F EPS forecasts by 2%-13% as (1) we lower projected FY17-18 loan growth from 9%-10% to about 3% on the assumption that FY17-18 loan growth would be close to the management’s target for 2016, and (2) raise the assumed share base from 9.8 billion shares to 10.2 billion shares for FY16-18F to factor in the new shares issued under the dividend reinvestment plan.
“As a result, our dividend discount model-based target price falls from RM10 to RM9.20 despite the roll-over of the TP to end-2017,” it said.
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