- 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 alluded that its forex income should be strong, partly due to third customer flows hedging volumes having picked up on the back of currency volatility.

 - Besides this, we expect Maybank to post a windfall unrealised forex gain from the recent movement in the Ringgit currency.

 - Maybank’s USD asset exposure is about 16% of its total assets. We estimate that Maybank’s hedging policy is still less than 100% of its net exposure.

 - With the depreciation of the Ringgit:USD rate to 3.50 as at end-December 2014, from 3.27 in end-September 2014, we expect Maybank to post a hefty unrealised forex gain in ahead.

 - Despite the possibility of a large increase in forex gain, we do not think that it will provide a major rerating catalyst as currency movement tends to be volatile.

 - The last big bump in forex was in 3QFY13, when the company recorded a large net forex gain of RM891mil. This was when the Ringgit depreciated to 3.26 from 3.16 during the quarter.

 - Given the potential windfall, we believe there may be additional loan loss provisioning for impaired loans related to shipbuilding construction. The construction segment’s impaired loans had moved up by RM849mil in its previous quarter results.

 - We maintain HOLD.

Source: AmeSecurities