- We maintain our HOLD rating on Malayan Banking Bhd (Maybank). We are now rolling forward our base year for Maybank to FY14F from FY13F. Our fair value is unchanged at RM10.30/share. This is based on a new ROE of 13.8% for FY14F (from 14.2% for FY13), leading to a new fair P/BV of 1.7x (from 1.9x previously).

- Based on recent news flow on changes to the company’s management team, we have extracted data on its investment banking operations under Maybank Kim Eng.

- To recap, the investment banking operations as a whole, including the regional operations, contributed 33% to the total group non-interest income in 1HFY13 (see Table 1 and 2 in following pages).

- Out of this, the Malaysia operations contributed 34% to Maybank Kim Eng’s total non-interest income. (As a side note, the other two major contributors by region are Thailand (34%) and Singapore (16%).

- Maybank also provided further details on the fee income for Maybank Kim Eng’s Malaysia operations in 1HFY13(see Table 1 in following page).

- For the Malaysia operations, the biggest contributor was from the brokerage fee portion, which made up 32% of Malaysia’s operations.

- The second largest was placement fees at 21%, followed by arranger fees at 20%.

- We assume that the broking fee is more sustainable and less dependent on one-time fees generated from mandates.

- From this, we assume the remaining portion of fee income to be related to mandates. Thus, we guesstimate that fee portion related to mandates may come up to circa RM370mil per annum, based on the 1HFY13’s trend. This makes up 5.7% of our net earnings forecast for FY14F.

- A possible downgrade of 5.7% to our net earnings will lead to a potential ROE of 13.3% for FY14F, and a new fair value of RM9.70/share.

- There was some weakness in Maybank’s share price yesterday following confirmation of the news. However, we reiterate that our guesstimates indicate limited downside to fair value at this stage. Thus, we believe the news on changes to the management team has been mostly priced in, although share price may likely trade sideways for a while. Maintain HOLD.

Source: AmeSecurities