KUALA LUMPUR: CIMB Equities Research could raise its target price for Malayan Banking Bhd
(Maybank) to between RM9.37 and RM9.55 based on its estimates from the potential listing of insurance unit, Etiqa.
It said on Tuesday there has been market talk that Maybank could list its Etiqa. If this materialises, it would be positive for Maybank as it would enable the group to unlock the value of its investment in this entity.
“We estimate that Maybank’s potential gains from the deal would be in the region of RM1.7bil to RM3.5bil (17 sen to 35 sen a share), assuming that Etiqa lists at 1.5 times to two times book.
“This would raise our target price to between RM9.37 and RM9.55, not far off from the current market price of RM9.40,” it said.
In the report, CIMB Research had downgrade Maybank to Hold from Add as it believes the expected earnings recovery in FY17 is priced in given that it trades at currently two standard deviations above its five-year average price-to-earnings (P/E).
Maybank’s share price was up 14.6% YTD, outperforming the 7% rise in the KLCI.
“We continue to project a recovery in Maybank’s net profit growth from a decline of 1.4% in FY16 to an expansion of 8% in FY17F,” it said.
To recap, CIMB Research downgraded Maybank to Hold from Add due to its strong share price performance YTD that has outperformed the KLCI.
“As such, we believe that the expected recovery in FY17F net profit growth is priced in as its FY18F P/E is almost two standard deviations above the five-year average. We retain our FY17-19F EPS forecasts and DDM-based target price of RM9.20. We prefer RHB Bank for exposure to Malaysian banks,” it said.
CIMB Research said the upside risks to its call include stronger-than-expected loan and fee income growth and downside risks include a further increase in impaired loans and higher credit costs upon the adoption of MFRS 9 in 2018.
“Our views on the earnings prospects of Maybank in 2017 are unchanged. We continue to project a recovery in the group’s net profit growth from a decline of 1.4% in FY16 to an expansion of 8% in FY17F.
“The key driver for FY17 earnings is likely to be the expected normalisation of loan loss provisioning (LLP). We forecast a 1.1% drop in Maybank’s LLP in FY17F, compared to a 68.3% jump in FY16.
“The surge in the share price pushed up Maybank’s rolling forward price-to-book value (P/BV) from 11.5 times in December 2016 to 12.9 times on April 21.
“The current rolling one-year forward P/E valuation is unattractive, in our view, as it is two standard deviations above the five-year average of 11.1 times. We are of the view that the positive earnings outlook for Maybank in 2017 is largely already priced in,” it said.
Limited time offer:
Just RM5 per month.
