Malayan Banking - Further clarification on new share placement

-  We are maintaining our HOLD rating on Malayan Banking Bhd (Maybank), with a lower fair value of RM9.20/share (vs. RM9.30/share previously). This is based on a downgraded ROE of 13.9% (from 14.0%) for FY12F, which leads to a fair P/BV of 1.9x.

-  Maybank has held an analysts’ briefing to discuss its recent share placement. Recall that Maybank had placed out in total 412mil new shares at RM8.88 for total proceeds of RM3.66bil.  

-  Maybank said the proposed share placement is to boost its equity capital ahead of the implementation of the BASEL 3 capital framework. Maybank added that the proforma core equity position before the proposed interim dividend will improve from 7.97% to 9.27% whilst its proforma total capital adequacy ratio will improve from 15.66% to 16.96% as at 30 June 2012. 

-  Earlier Maybank had disclosed a common equity ratio of 8.63% as at June 2012. Thus, this is different from the common equity ratio just disclosed of 7.97% (before the share placement) as at end-June 2012, mainly because the earlier disclosed 8.63% figure was calculated based on BASEL 3 while the 7.97% figure is based on Bank Negara’s Concept Paper released in May 2012. The main difference is in terms of in investments in affiliates of up to 10% of shareholders funds allowed under BASEL 3 but not under Bank Negara’s concept paper.   

-  Maybank also clarified that the proposed share placement is not for a possible acquisition of a 25% stake in Bank of Ayudhya (BAY), which we estimate will cost RM5bil, based on the current market price. Maybank said that it is not participating in the process of bidding for BAY at this moment.  

-  We have adjusted our forecast to take into account the upsized portion of 112mil shares (from the original proposed 300mil shares) and new share price of RM8.88 instead of the indicative RM8.80. Based on this, our new ROE forecast is now 13.9% (from 14.0%) FY12F. In total, the share placement has diluted ROE by 0.5ppt.  

-  Given the latest share placement, it may be more challenging to continue to justify a higher dividend payout ratio of above 75% post utilisation of Maybank’s Section 108 tax credit, by 2013. We maintain our view that dividend payout ratio will likely normalise to the official guidance of 40% to 60% post utilisation of Section 108 tax credit by 2013.  We have assumed a dividend payout ratio of 58% for FY13F vs. 75% for FY12F. The latest share placement is dilutive to ROE. We maintain HOLD on Maybank.    

Source: AmeSecurities