Malayan Banking - Scaling up growth in 2Q

-  We are maintaining our HOLD rating on Malayan Banking Bhd (Maybank), with an unchanged fair value of RM9.50/share. This is based on an ROE of 14.4% FY12F, which translates into a fair P/BV of 2.0x.

-  Maybank’s 2Q, if annualised, was 10.7% above our forecast and 10.8% above consensus. The 1H earnings worked out to be 54.5% of our and consensus net earnings forecasts.

-  2QFY12 included a net surplus transfer from life insurance funds of RM124mil for the half-year. This is a variation from Maybank’s normal policy of transferring life insurance surplus only in the last quarter of its financial year-end. 

-  For comparison, the life insurance surplus transfer amounted to RM178mil in 2QFP11 and RM304mil in 4QFY11. Thus, stripping these off (assuming a corporate tax rate of 25%), we estimate net earnings to be relatively flat on a QoQ basis.  

-  Nevertheless, loans growth picked up to an annualised rate of 15%, propped up by strong corporate loans. NIM improved by 4bps QoQ. Non-interest income was 4.5% lower QoQ, with lower investment and trading income but fee income was stronger due to large mandates. 

-  Overall gross impaired loans balance has declined significantly, by 13.7% QoQ – attributed to a couple of large accounts which underwent restructuring and was resuscitated. Gross impaired loans ratio is now reduced to 2.0% in 2QFY12 from 2.5% in 1QFY12. Loan loss cover has now been increased to 104.2% in 2QFY12 from 94.5% in 1QFY12. Credit cost was low at only 27bps in 2QFY12, compared with the guidance of 36bps. The company indicated that it does not expect any major increase in impaired loans.

-  Maybank has now announced that it will continue with its dividend reinvestment plan (DRP) after FY13, although the dividend payout ratio may not be as high as 70% to 80%, which is largely to ensure full utilisation of Section 108 tax credit. Assuming the 1HFY12’s declared DPS is fully paid, the Section 108 tax credit would be reduced to RM600mil. 

-  We expect the dividend payout ratio to be lowered to the official guidance of 40% to 60% post utilisation of Section 108 tax credit. We assumed a dividend payout ratio of 58% FY13F, from 75% FY12F. Maybank’s 2Q was backed by strong corporate loans, and investment banking mandates and life insurance profits. We however maintaining HOLD on Maybank as we expect lower dividend ahead.    

Source: AmeSecurities