- We maintain HOLD on Malayan Banking Bhd (Maybank) with a lower fair value of RM8.50/share (previously RM9.00/share). We have rolled over our base year to FY16F from FY15F, and based our fair value on FY16F’s ROE of 11.5% (vs. FY15’s ROE of 12.3% previously). This leads to a lower fair P/BV of 1.3x (previously 1.5x).

- Maybank 2QFY15 earnings, if annualised, was 4.8% below our forecasts and 6.2% below consensus estimate. The 1H makes up 48.5% of our estimate and 47.7% of consensus forecast. The main areas of difference to our projection are the softer-than-expected non-interest income as well as higher impairment for securities.

- 2QFY15 indicates softening operating parameters that are in line with industry trends, in our view. The company said that 1QFY15 was generally robust due largely to pre- GST demand, while it expects 2HFY15 to be naturally softer.

- Looking ahead, we get the sense that the company is now much more cautious in terms of asset quality issue. Given that Singapore is dependent on trade and exports, it expects further weakening in terms of credit trend in the country. So far, its asset quality issues in Singapore are still related to only specific accounts (recall that the newly impaired loans in 1Q were related to business, while the 2Q newly impaired loans were more traderelated), and are not systemic in nature.

- For Malaysia, while asset quality held up well, it believes there will likely be some deterioration, based on macro scenario. It continues to monitor specific accounts in shipping, oil and gas, and selected segments. Nevertheless, it does not expect major systemic deterioration but more of specific accounts’ issues if any.

- The company will be adopting a more disciplined and conservative approach in its credit underwriting process as it expects slower growth scenario. We are positive on the more watchful stance being embraced by the company.

- However, looking ahead, we have reduced our net earnings forecasts by 4.2% for FY16F, to account for two main changes, in line with our projection for banking peers: (1) Downgrade in our loans growth forecast to 4.3% from 6.3% previously; and (2) higher credit cost assumption of 45bps, compared to 40bps previously, to reflect possible contagion effects from macro uncertainty. Recall Maybank’s credit costs jumped to 93bps in it FYE June 2009, from 51bps in its FYE June 2008. We maintain HOLD.

Source: AmeSecurities Research - 28 Aug 2015