Highlights

MQ Research Maintains Outperform on Maybank

Date: 19/04/2019

Source  :  MACQUARIE GROUP
Stock  :  MAYBANK       Price Target  :  10.40      |      Price Call  :  BUY
        Last Price  :  8.96      |      Upside/Downside  :  +1.44 (16.07%)
 


Malayan Banking (Maybank) is relatively well-positioned all around, according to Macquarie Equities Research (MQ Research) in its report (17 Apr). MQ Research said that the recent price weakness is a buying opportunity, and maintains Outperform on Maybank with a target price of RM10.40.

Conclusion

  • Record FY18 earnings (+8% year on year (YoY)) had opex and net credit cost containment offsetting operating income headwinds, a dynamic MQ Research forecasts to continue (neutral-to-positive jaws) notwithstanding dramatized newsflow on specific exposures, e.g. Hyflux. Liquidity and capital backing is comfortably buffered vs. pending regulations (NSFR, D-SIB), providing room for expedited return on equity (ROE) suppressive dividend reinvestment policy (DRP) phase-out. Recent price weakness is a buying opportunity.

Impact

  • Favourable loan book positioning: geographically and segmentally diversified loan book underpins loan growth resilience – in particular, MQ Research notes relatively low exposure to troubled property and auto lending while large working capital share broadly leverages government refocus on stimulus measures (e.g. ECRL restart) after extended fiscal consolidation.
  • Hyflux – more molehill than mountain: the collapse of Hyflux’s rescue plan means continued uncertainty re the net recoverability of Maybank’s RM2.1bn secured loan. MQ Research does not believe a potential takeover of the desalination plant by national water agency PUB for zero dollars means Maybank’s claim is extinguished; in any case, a complete write-off would equal impairment equivalent to RM0.115 per share, or <2% of share price.
  • DRP phase-out (slightly) pushed out: group common equity tier 1 (CET 1) ratio, helped by risk weighted asset (RWA) optimisation - FY18 marked a fourth straight year where RWA growth lagged both loans and assets - has risen to a record 14.5%, the second highest in the sector. Nonetheless, pending D-SIB parameters means DRP discontinuation (i.e. 100% cash payout) is delayed to FY21, from FY20 previously.

Earning and Target Price Revision

  • MQ Research adjusts FY19-20E earnings lower by 1-2%, mainly on moderated loan growth, net interest margin (NIM) expectations, and introduce FY21 forecasts; MQ Research is 2-3% above consensus. Gordon Growth Model-based target price (12% sustainable long term ROE, 10% cost of equity (COE)) valuation base is rolled forward to FY20, generating a RM10.40 target price (TP) or 1.4x FY20E book value, in line with 5yr average. Bear, bull case valuations are RM8.00 and RM12.00, respectively.

Price Catalyst

  • 12-month price target: RM10.40 based on a Price to Book methodology.
  • Catalyst: sustained decline in credit costs, rolling back of ROE-punitive DRP, sale of non-core/non-Asean assets e.g. 20% stake in Pakistan’s MCB Bank.

Action and Recommendation

  • Maintain Outperform rating, with revised RM10.40 TP (previously RM10.90).

12-month Target Price Methodology

  • MAY MK: RM10.40 based on a Price to Book methodology

Source: Macquarie Research - 19 Apr 2019

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Labels: MAYBANK

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