Kenanga lowers price target on Maybank post earnings revision

KUALA LUMPUR: Kenanga Investment Bank has maintained its "market perform" recommendation on Maybank Bhd but tweaked its target price slightly lower after raising its credit cost forecast and lowered its dividend projection.

Following a meeting with Maybank's management, the research house said asset quality at the lender has been stable while positive but pre-emptive provisions will continue to be booked in to build loan loss reserves.

"We understand that the pre-emptive provisions remain pre-emptive, i.e. the allowances have not “crystalised” as the loans have not deteriorated at this juncture.

"In fact, we were made to understand that overall asset quality has largely been stable.

"While the stability of asset quality thus far is a positive, Maybank will continue booking in pre-emptive provisions and build up its loan loss reserves (2QCY20 LLC: 83%; LLC + regulatory reserves: 99%)," it said.

Maybank will maintain its 2020 forecast credit charge guidance of 75 to 100bps for now.

In line with this, Kenanga revised its FY20 forecast credit cost assumption to 93bps from 8-bps and lowered its FY21 charge-off assumption to 67bps from 70bps.

Its two-year credit cost is now forecast at 160bps as compared to 150bps previously.

The research house also lowered its FY20 dividend payout assumption to 40% from 70%, to be in line with the range assumed for other banks.

Given the lower payout, it assumes an all-cash dividend.

"Overall, our FY20E/FY21E DPS have been revised to 21.5 sen/41.5 sen from 38.5 sen/39.5 sen," it said.

Its net profit targets were also revised 7% lower for FY20 and 1% higher for FY21.

Kenanga cut its target price on Maybank to RM7.70 from RM7.85 post the earnings revisions.
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