- We maintain our HOLD rating on Malayan Banking Bhd (Maybank) with an unchanged fair value of RM9.80/share. This is based on an unchanged ROE of 13.4% for FY14F and an unchanged fair P/BV of 1.7x.

- We have earlier highlighted in a recent report that there may be changes to the banking level common equity tier 1 (CET1) ratio, if Maybank is required to locally incorporate its operations in Singapore.

- In this report, we have readjusted our forecast for the banking level CET1 ratio, as we understand that banking level RWA should correspondingly exclude Singapore’s RWA as well, once the Singaporean operations are incorporated.

- Our new sensitivity analysis shows that the banking level CET1 ratio will be at 8.27% by 2018, assuming it incorporates its operations in Singapore. This is above the minimum required CET1 ratio of 7% by 2019, but the minimum CET1 ratio has not included any additional

requirements for possibly counter-cyclical buffer ahead and possible domestic SIFI (systematically-important financial- institutions) buffer.

- Assuming a comfortable banking CET1 ratio of 10%, we estimate a required additional RM4.0bil in fresh capital.

- Our sensitivity analysis shows that if a capital raising exercise is done via a rights issue, this may involve a rights issue on a 1-right-for-every-17-shares basis, at a potential rights price of RM7.60 (about 20% discount to current market price).

- Our sensitivity analysis also indicates that the rights issue will dilute ROE to 13.0% from our current forecast of 13.4% FY14F. We estimate book value to be slightly enhanced to RM5.72/share, from our current RM5.69/share for FY14F. With a lower ROE, our potential fair P/BV is reduced to 1.65x from 1.7x currently for FY14F, based on the Gordon Growth Model.

- This leads to a possible new fair value of RM9.50/share, compared to our current RM9.90/share.

- Thus, despite the revision to our estimated banking level RWA, the conclusion remains the same – assuming a comfortable banking CET1 ratio of 10%, there may be possible further capital raising ahead.

- Maintain HOLD.

Source: AmeSecurities