- We maintain our HOLD rating on Malayan Banking Bhd (Maybank), with an unchanged fair value of RM9.90/share. This is based on an unchanged ROE of 13.5%for FY14F, and an unchanged fair P/BV of 1.7x.

- Based on our recent company visit, there were four key takeaways. First is that recent loan demand trend is probably slow. While the corporate and non-consumer loan demand trends have been strong in January, these are essentially based on drawdown plans put in place before the end of 2013. We expect corporate loan disbursements to have been more subdued in February. As for consumer loans, there are indications that primary launches have slowed down. Maybank is usually active in primary launches, and has so far re-shifted its focus to secondary market financing to make up for the slower primary market launches.

- Secondly, the company is maintaining its overall group LDR target at 85%-90%. The reported LDR was 89.9% as at end-December 2013. We understand that LDR remains a key focus for the group, although if the company believes that a particular loan is of good credit quality, it may go ahead with the loan and let LDR increase, as it expects to easily tap into medium-term financing for funding later. However, if LDR increases well above its internal target of 85% to 90%, the company is likely to withdraw from lending in order to let LDR ease back. To us, there is an implication of a loans being possibly crimped if the industry deposit growth remains subdued.

- Third key takeaway is that a possible local incorporation in Singapore would mean an increase in investments in subsidiaries and associates. This creates uncertainty over its CET1, in our view, in the short term.

- Lastly, the company hinted that its FY14F KPI targets are based on a best-case scenario for this year, i.e. achieving group loans and deposit growth targets of 13%, and NIM holding up within the targeted compression of 10bps YoY. ROE target is 15.0%. Credit cost target is 30bps-33bps.

- Looking ahead, we remain uncertain over the MTM losses for its securities portfolio, the impact to bank level CET1 ratio from possible incorporation of Singapore, weaker domestic growth environment overall on the banking industry, and high LDR ratio. We maintain our HOLD rating on Maybank. 

Source: AmeSecurities