Maybank remains Add despite exposure to 1MDB

KUALA LUMPUR: CIMB Equities Research is maintaining its Add recommendation for Maybank despite its exposure to 1Malaysia Development Bhd (1MDB) after it failed to  pay a RM2bil loan due on Dec 31, 2014.

“We gather that Maybank’s loan exposure to 1MDB could amount to RM5.5bil. A 10% provisioning for this would trim Maybank’s FY15 net profit by 5.6%, based on our estimates,”  it said on Wednesday.

CIMB Research also pointed out the above risks would be reduced by the government’s guarantee and 1MDB’s listing plans.

“Our DDM-based target price (COE of 9.7%; LT growth of 4%) is intact. Despite this possible hiccup, Maybank remains an Add and our top pick for the sector, as it would benefit from the expected improvement in the Indonesian operating environment and regional expansion drive,” it said.

The research house said it had gathered from The Star article that Maybank’s loan exposure to 1MDB totals RM5.5bil. 

“We estimate that a 10% provision for the loans would increase Maybank’s credit costs by RM550mil and reduce FY15 net profit by 5.6%. In the worst-case scenario, a full impairment of the loans would slash Maybank’s FY15 net profit by 56% and lower our target price by around 44 sen to RM12.06.  

“However, we take the comfort in the fact that Maybank’s exposure to 1MDB is guaranteed by the government of Abu Dhabi. Furthermore, the loans would be settled if the 1MDB IPO is successfully implemented this year. Hence, we do not see a high likelihood of full impairment for the loans,”  it said.