- We maintain our HOLD rating on Malayan Banking Bhd (Maybank) with an unchanged fair value of RM9.40/share. This is based on an ROE of 12.6% for FY15F, leading to an unchanged fair P/BV of 1.6x.

- Maybank’s annualised 3QFY14 net earnings were marginally below our forecast by 2.7%, and consensus’ estimate by 5.3%. The 9M made up 74.8% of our and 70.9% of consensus’ full-year FY14F earnings.

- Annualised loans growth was stronger at 9.4% in 3QFY14, if compared to 7.2% in 2QFY14. NIM slipped 4bps QoQ, attributed to higher cost of deposits.

- Gross impaired loans balance rose 13.9% QoQ in 3QFY14, taking the overall gross impaired loan balance higher to RM6,372.7mil in 3QFY14 from RM5,596.7mil. The bulk of the increase came from the construction segment, in which impaired loans had increased to RM1,157.9mil in 3QFY14 from RM308.6mil in 2QFY14.

- The company hinted that this is related to one particular group of companies involved in shipbuilding construction in Malaysia. Overall gross impaired loans ratio was thus higher at 1.6% in 3QFY14, compared to 1.5% in 2QFY14. The construction impaired loans ratio increased to 8.1% in 3QFY14 from 2.2% in 2QFY14.

- The loan loss provision came in much lower though at only RM70.5mil in 3QFY14, vs. RM154.4mil in 2QFY14. This was due mainly to a lumpy recovery which came through in 3QFY14. Besides this, the company deemed the newly impaired construction loans to have sufficient collaterals. The low loan loss provision led to credit costs of only 7bps in 3QFY14 (2QFY14: 17bps).

- Loan loss cover had correspondingly softened to 95.4% in 3QFY14, from 10.7% in 2QFY14, with the higher newly impaired loans. The company had however hinted that it is likely to eventually move back the loan loss cover to above 100%.

- The 3Q results were generally in line. We maintain HOLD.

Source: AmeSecurities