Malayan Banking - OUTPERFORM - 15 JUNE 2012

Malayan Banking Bhd (“Maybank”) held an Investor Day with its Global Wholesale Banking team (GWB) yesterday. The presentation was chaired by the group CEO, Dato Sri Abdul Wahid Omar and presented by its Head of global wholesale banking, En Abdul Farid Alias as well as Maybank Investment Bank’s CEO, Tengku Dato Zafrul.   Since the launch of its GWB operations (including corporate banking and investment banking) in July 2010, the group has made significant progress in building up the GWB’s business. We are convinced that Maybank’s wholesale banking will eventually become a leading player in  the Asean region that will see it replicating its success model in Malaysia to Singapore, Indonesia and Thailand. Post briefing, we continue to reiterate our OUTPERFORM rating on Maybank with an unchanged target price of RM10.40.

Under Maybank’s Enterprise Transformation Services  programme, global wholesale banking is one of the three pillars under the new Maybank Group.  The operation, which was set up in July 2010, has the aim of regaining domestic leadership and aggressively pursuing an ASEAN market expansion by better client interaction. The group has started to reap the fruits from its transformation programme above, which saw the group gaining market shares in both the corporate and investment banking businesses locally. 1QFY2012 saw Maybank IB being ranked either in first or second place in a few IB businesses such as merger & acquisition, equity capital market, debt capital market and equity brokerage. This has contributed positively to Maybank Group’s strong 1QFY12 performance.  

To recap, Maybank’s 1Q12 PAT of RM1,347m made up 27% of the consensus’ forecast and 26% that of ours. Its non-interest incomes were strong at RM1,654.5m (+7.5% QoQ and +54.5% YoY), thanks to the stronger local IB business and Kim Eng’s contribution in the quarter.  Corporate banking and Investment banking has contributed RM800m to RM5,020.0m total revenues which accounted for 39% of total revenues in 1QFY12.  

During the presentation, the group remained optimistic on its 2Q12 profit guidance as it still has a strong pipeline of investment banking deals. While there is no doubt that 2H12 would be more challenging with the Eurozone economies remaining volatile, we, however, believe that positive growths in the local ETP’s related sectors are expected to stimulate private investments and in turn, spur domestic loans growth as well as fuel local capital market activities.  The next journey should see the group aiming to be a leading wholesale bank in ASEAN by 2015.  Areas of opportunities in the region include driving more crossborder deals, rowing its Islamic banking business  and seeking more treasury products businesses (hedging, currency and swap). This should result in a noninterest income growth over the medium term.

Given its continuing good prospects, we are maintaining our rating on MAYBANK as an OUTPERFORM. MAYBANK is likely to be one of the key beneficiaries from ETP projects rollout this year with its corporate loans growth likely to see an impressive rise for the 2H of the year.  We do not discount the possibility of the group delivering or even outperforming its FY12 total loans growth target of 16.2%. Adding to that, earnings upside could also come from a lower credit charged-off rate going forward as well as a stronger than expected fee-based incomes after the acquisition of Kim Eng. The group offers a good dividend yield of 6.3%.  Our Target Price of RM10.40, based on 2.0x FY13 P/BV, implies a reasonable 14.9x FY13 PER.    

Source: Kenanga