Malayan Banking - Dividend boost in final quarter HOLD

- We are maintaining our HOLD rating on Malayan Banking Bhd (Maybank), with an unchanged fair value of RM10.20/share. This is based on an ROE of 14.0% FY13F, which translates into a fair P/BV of 1.9x.

- Maybank’s FY12 is in-line with our estimate but about 3.0% above consensus’ RM5,580mil. 

- The main positive surprise was the dividend. Maybank has proposed a final dividend comprising:- (a) GDPS of RM0.18 less 25% tax (NDPS of RM0.135), and (b) singletier dividend of RM0.15/share. 

- Together with the gross DPS of RM0.32 (net RM0.24) already declared for 1HFY12, the total net DPS for FY12 would be RM0.525. This is above our forecast of net DPS of RM0.48. Net dividend payout ratio was at 74.7%, above our forecast of 70.8%. 

- Elsewhere, group loans growth was at 12.9%, below the target of 15% but still a reasonably strong year. NIM registered an about 12bps drop on a YoY basis, in-line with expectations. Non-interest income was slower on QoQ basis, mainly because of a soft investment and trading income. Otherwise, fee income had picked up somewhat in 4Q compared to a relatively subdued 3Q. 

- The other blip may be an increase in working capital impaired loans, attributed to a manufacturing company which had unexpectedly gone into impaired loan status in 4Q. However, given good recoveries in earlier quarters, credit costs overall at 23bps remained lower than the earlier guidance of 36bps. Nevertheless, the marginal improvement in asset quality in this quarter came mainly from write-offs rather than recoveries.

- Maybank reported a higher group common equity ratio of 10.96% (assuming an 85% dividend reinvestment rate) in 4QFY12, vs. 9.16% in 3QFY12 (assuming an 88% reinvestment rate). For the bank entity’s common equity Tier 1 ratio, we estimate a marginal increase to 7.6% in 4QFY12, from 7.5% in 3QFY12 (this is assuming no phase-in arrangements as is allowed by Bank Negara, i.e. assuming full deduction of the bank entity’s investments in subsidiaries and associates). 

- Maybank’s 4QFY12’s main positive surprise was its higher final dividend, which is likely to sustain the share price. Topline growth has improved from a softer 3QFY12 but was behind target. Credit cost is now normalising after previous good recoveries.   We expect the main driver to share price to still be high dividend. We are maintaining our dividend payout ratio at 55.9% FY13F given the relatively low level for its banking entity’s common equity ratio. 

Source: AmeSecurities