Friday 17 August 2012

Malayan Banking Bhd - 2Q12 above expectations


Period    2Q12/1H12

Actual vs.  Expectations
 Above the consensus’ expectations. The 1H12 PAT of RM2,784m made up 55% of the consensus’ forecast and 53% that of ours. 

Dividends   The group has proposed an interim gross dividend of 32 sen/share (less 25% tax), consisting of a 4 sen cash portion and a 28 sen electable for DRP.

Key Result Highlights
 The 2Q12 net interest income grew strongly by 6.1% QoQ and 15.3% YoY to RM2,106.3m. The NIM was higher by 4bps to 2.42% given the strong 15.0% loan growth (on an annualised basis) during the quarter.  

 Its domestic loan grew 15.8% (on an annualised basis), which was the major outperformer as it is above the full-year loans growth KPI target of 13.6%, driven  by annualised loans growth rates of 24.4% and 13.1% in local corporate and consumer loans.  

 Besides the strong growth in its funding businesses, we also note that the 1H12 non-interest incomes were strong too at RM4,110.9m (+21.4% YoY) thanks to 1) a stronger Kim Eng’s contribution, 2) transfer profit from surplus in the insurance division and 3) better feebased income from the strong issuance of Islamic debt securities.  As a result, the group’s total income  grew 22.3% YoY with fee-based incomes contributing 40.0% of the total income.  

 The 2Q12 overhead cost of RM1.98b was flat but with the higher total income, the cost-to-income ratio was lower at 46.9% (vs. 48.7% in 1Q12). 

 The NPL outstanding balance of RM6.0b was lower in 1Q12 (from RM7.0b in 1Q12) with the net impairment ratio improving 29bps QoQ to 1.28%. The annualised credit charged-off rate is estimated at only 30bps  to gross loans. Loan loss coverage meanwhile was recorded at 104%. 

 In summary, the annualised 16.1% RoE has exceeded the group’s 15.6% target.

Outlook   During the briefing, the group said it remained optimistic on its 2H12 profit guidance as it still has a strong pipeline of local wholesale banking incomes such as IPOs, Islamic debt capital market and corporate lending. This further supports our argument on ETP optimism in driving Maybank’s balance sheet growth and profitability. We 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 the local capital market activities. 

 Its RM600m unutilised tax credit should sustain a dividend payout ratio of 80%. The stock currently offers 5.3% dividend yield.  

Change to Forecasts
 There are no changes to our earnings estimates.

Rating  MAINTAIN OUTPERFORM
 Our OUTPERFORM rating is maintained as the current share price implies a 21% total upside (together with a 5.0% net div. yield) to our Target Price (TP).

Valuation    Our Target Price of RM10.40, based on 2.0x FY13 P/BV and implying 14.9x FY13 PER, is retained.

Risks   Unexpected slowdown in fee incomes.  

Source: Kenanga

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