PETALING JAYA: Potential oil and gas (O&G)-related impairments and downside risk to loan growth may continue to weigh Malayan Banking Bhd’s (Maybank) share price down, said UOB Kay Hian.
The country’s largest bank is trading at its 10-year historical trough valuation of one time price-to-book ratio (-2 standard deviation).
Despite that, Maybank remains confident of maintaining a pure cash dividend payout ratio of 40% to 60% this year.
According to UOB Kay Hian, Maybank’s O&G portfolio remains among the highest domestically, despite reducing it from a high of 4.4% back in 2016 to 2.8% at present.
In terms of loan staging profile, 70% is classified as normal, 12% is under watch list accounts, 1% under special mention and 17% impaired.
“Assuming 50% of its existing O&G loans under the watch list and special mention category were to fall into Stage 3 gross impaired loans (GIL) category, this would lead to an estimated RM750mil increase in potential Stage 3 O&G related GIL.
“Ascribing a 70% loss given default (LGD), we estimate that Maybank would need to make an additional provision of RM525mil.
“However, as the group would have made some form of provisions when these loans were in Stage 2, the amount of provision top-up would be slightly lower.
“Taking Maybank’s Stage 2 level of provisions as a gauge, we estimate that the group may still need to top up RM496mil in additional provisions on its O&G portfolio, in a worst-case scenario analysis, ” said UOB Kay Hian, adding that this would cause a -6.6% impact on its earnings estimate for 2020.
The research house forecasted a 9% earnings contraction for Maybank in 2020, factoring in a total of four overnight policy rate (OPR) cuts, muted 3% loans growth, 2% contraction in non-interest income and a slight uptick in net credit cost.
On Maybank’s dividend payout, UOB Kay Hian has conservatively toned down its 2020 dividend payout ratio for the group, from 80% to 70% – implying a current yield of 6.2%.
Maybank’s average pure cash dividend payout ratio has been averaging 65% in the past three years, while peaking at 87.8% in 2019, to which UOB Kay Hian opined is not sustainable.
The total average dividend payout ratio inclusive of Maybank’s dividend reinvestment plan (DRP) has been hovering at 76% over the past 10 years, with the lowest being 72% back in 2013.
Apart from that, the research house noted that Maybank should not have any issues handling the short-term cash flow and liquidity impact from the six-months moratorium.
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