Malayan Banking - Putting capital issue to bed, for now HOLD

- We are maintaining our HOLD rating on Malayan Banking Bhd (Maybank). We roll forward our valuation to FY13F from FY12F, with our new fair value now at RM10.20/share (vs. RM9.20/share previously). This is based on a new ROE forecast of 14.2% FY13F, vs. 13.8% FY12F previously. Our fair P/BV is 1.9x. 

- Maybank hinted that 3Q loans growth is likely to be lower than the robust annualised rate of 14.6% seen in 2Q, which was boosted by lumpy corporate loans. However, Maybank remains confident of achieving its overall group loans growth target of 16%. NIM is likely to be relatively stable in FY13F. 

- Asset quality has improved significantly in recent quarters due partly to lumpy recoveries. Recall this led to a low credit cost of 28bps in 1H. So far, there has been no deterioration in asset quality overall. Maybank has experienced some increased requests from borrowers to restructure loans in recent months, but the increase is not significantly large and is manageable in its view. 

- Overall, we get the sense that Maybank’s credit cost may be marginally lower at closer to 30bps for FY12F, compared with its guidance of 36bps FY12. The company is likely to maintain its credit cost guidance at circa 36bps for FY13F (our forecast: 48bps FY13). 

- Maybank hinted it targets to sustain the current high dividend payout. It is maintaining its current dividend payout policy of 40% to 60%. Its Section 108 tax credit of RM600mil is expected to be fully utilised with the recently-announced interim dividend in August 2012. 

- We maintain our view that the 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. 

- Based on our sensitivity analysis, a dividend payout ratio of 75% for FY13F implies a total tax-exempt dividend of RM0.54/share FY13F, compared with our current forecast of RM0.41/share (based on a 58% dividend payout assumption). However, common equity ratio is estimated to decline to 8.55% from 9.16% FY13F if dividend payout is raised to 75%. 

- Given the latest share placement, we believe 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. 

Source: AmeSecurities