- We maintain our HOLD rating on Malayan Banking Bhd (Maybank), with an unchanged fair value of RM10.30/share. This is based on an unchanged ROE of 14.2% FY13F, leading to a fair P/BV of 1.9x.

- In terms of Malaysian Government Securities (MGS) exposure, we believe the bank is likely to have continued taking profit on some of its holdings, which helped to offset most of any recent marked-to-market losses.

- In addition, we estimate that Maybank’s USD asset exposure is at about 12% of its total assets. We estimate that Maybank’s hedging policy is less than 100% of this exposure.

- With the depreciation of the Ringgit: USD rate to 3.16 in end-June 2013 and to circa 3.25 currently from 3.10 in end-March 2013, we believe there may be some unrealised forex gain.

- With possible gain on earlier portfolio as well as forex gain, we believe that, on a net net basis, these are likely to offset any potential marked-to-market losses for its MGS portfolio.

- As for loan loss provisioning, we believe Maybank is likely to take the opportunity to raise loan loss provisioning to strengthen its loan loss cover from the current 99% in March 2013 to the 104%-105% level in the three preceding quarters of June 2013 to December 2012.

- This is positive as we believe it should address some concerns over low loan loss provision in relation to specific fresh impaired loans in the March 2013 quarter.

- As for any possible steel sector exposure, we estimate the amount to be insignificant, as these are likely to be classified under the business banking segment, which generally include smaller-sized loans compared to corporate loans classification.

- With further indications on Maybank’s MGS position, loan loss provisioning stance and steel sector’s exposure, we are now more comfortable with Maybank position in relation to the marked-to-market position of its MGS exposure and credit costs. Consensus forecast is RM6,277mil FY13F. Maintain HOLD.

Source: AmeSecurities