- We maintain 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 1QFY13, if annualised came in 5.1% below ours and 3.1% below consensus estimates. The 1Q made up 23.7% of ours and 24.2% of consensus FY13F net earnings forecasts.

- Group loans growth was muted at 1.5% QoQ in 1QFY13, compared to 4.7% QoQ in 4QFY12. This translates into annualised loans growth of 5.8%, below the targeted 12.0% for FY13F. However, this is in line with earlier indications that larger corporate and ETP-related loans’ disbursements were slow before the general elections, with indications of firmer disbursement schedule coming in only in May and June 2013. NIM improved 1bps, due to slower loans growth- thus coming in above the earlier target of a NIM decline of about 10bps YoY for FY13F. However NIM is expected to decline ahead with a pick-up in loans growth.

- There was an increase in absolute gross impaired loans balance by 7.5% QoQ in 1QFY13 (4QFY12: -2.5% QoQ). Thus, gross impaired loans ratio has recorded a corresponding uptick to 1.9% in 1QFY13 (4QFY12: 1.8%). Credit cost was still 11bps in 1QFY13, below the target of 30bps for FY13F. With low loan loss provision and an uptick in impaired loans, loan loss cover is also consequently lower and has fallen below the 100% level, at 99.2% in 1QFY13 (4QFY12: 105.6%).

- The fresh impaired loans are likely related to a couple of medium-sized newly impaired loans, with one likely in the domestic-oriented segment and the other in the exports segment. The company alluded that the impaired loans included selected manufacturing accounts. Looking ahead, the company does not foresee these to be indicative of systemic in nature, as the reasons for the impairment are quite varied. Among these are related to cost overruns on projects for one particular impaired loan, while another is related to foreign expansion plans.

- Maybank’s 1QFY13 is soft in terms of slower-thanexpected loans growth, and uptick in impaired loans. We expect high dividend to remain the main driver for share price movement. The company hopes to maintain high dividend payout with continuing DRP plan. We expect another RM0.10 increase to our dividend forecast if we upgrade our dividend payout ratio to 75% from 55.9% FY13F. Maintain HOLD.

Source: AmeSecurities