Malayan Banking Bhd - OUTPERFORM

News:    According to media reports, Malayan Banking Bhd (“Maybank”) is exploring a bank business opportunity in Thailand. However, it was reported that Maybank’s CEO, Abdul Wahid Omar, the Group is actually not in active talks about acquiring a stake in TMB bank PCL at the moment. 

Comments:   We view Maybank plan to possibly venture into Thailand banking business positively. Its move to search for business opportunities in Thailand is within expectation as its strong pro-forma Core Capital Ratio (“CCR”) post Dividend Reinvestment Plan (“DRP”) of 10.2% positions the group to make small scale acquisitions. TMB’s stake sales could from the Thailand government (MoF) and ING, which owned 26.1% and 25.2% of TMB respectively.  

However, TMB’s operating metrics and asset quality is not of the standard yet when compared with the industry average. Currently, TMB is trading at 1.4x BV (industry: 1.85x) against its low ROE of 9.1% (vs. industry’s 15.6%).  

Furthermore, TMB’s high NPL ratio and low coverage ratio at 7.5% and 73% respectively (vs. the industry’s 4.1% and 117% respectively), suggest a potential kitchen sinking exercise, followed by a capital injection post acquisition.  Therefore, the effective entry price could be higher than the current 1.4x BV with risk of earnings dilution for the acquirer.  As such, we believe that Maybank is not actively in talks to acquire the TMB stake as well.

Outlook:   A pro-forma Core Capital Ratio of 10.2% should see Maybank well positioned to meet the 1 January 2013 Basel 3 minimum requirement of 7%.   Kim Eng acquisition offers solid and steady feebased incomes from Asean region.  

Forecast :   No earnings impact. 

Rating:  MAINTAIN OUTPERFORM

Earnings upside could come from a lower credit charged-off rate going forward as well as stronger than expected fee-based incomes after the acquisition of Kim Eng.  The group offers a good dividend yield of 6.3%.

Valuation:    Unchanged TP of RM10.40 (2.0x FY13 P/BV, implying 14.9 FY13 PER).

Risks:   Unexpected slowing down in fee-incomes.

Source: Kenanga