- We maintain our HOLD rating on Malayan Banking Bhd (Maybank), with an unchanged fair value of RM9.80/share. This is based on a ROE of 13.3% for FY14F, leading to a reduced fair P/BV of 1.7x.

- Maybank’s foreign shareholding continued to decline to 21.8% in early December 2013, from 21.9% in end-November 2013 and 22.7% in end-October 2013.

- The most recent peak was 25.99% in end-May 2013 (see Chart 2 in page 2).

- The lowest level in recent years was 10.29% in early April 2009, when Maybank completed its 9-for-20 rights issue.

- Prior to that, Maybank’s foreign shareholding peaked at 21.9% in end-February 2008, a few weeks before it announced its Indonesian acquisition.

- The net number of shares sold by foreign shareholders accelerated to 71mil in November 2013, compared to 36mil in October 2013, based on our estimates (see Chart 1 in page 2).

- For the year-to-date, there was a net buying of 281mil shares by foreign shareholders compared to FY12’s net foreign buying of 635mil (see Chart 3 in page 3).

- Thus, for Maybank, foreign flows are still generally positive.

- We remain uncertain over earnings in two major areas. First is the possibility of marked-to-market losses for its securities portfolio. Its most recent 3Q results disclosed a total unrealised loss of RM506.0mil in 3QFY13, compared to an unrealised gain position of RM383.6mil in 2QFY13 for its securities portfolio.

- In our view, this was rather unexpected as it was partly related to its securities held-for-trading, which we were expecting minimal losses, as we believe it had switched the portfolio to shorter-duration papers after profit taking activities in 2QFY13. Nevertheless, the unrealised loss is attributed to the steep yield curve.

- Secondly, we remain cautious on credit costs and are maintaining our forecast of 39bps for FY14F from 19bps in FY13F. The company alluded that its exposure to steel sector is not material, but we believe that this would only be confirmed in next few quarters’ results. The good news is that Maybank’s high earnings base of at least RM6bil, do indicate some buffer to net earnings.

Source: AmeSecurities