- We maintain HOLD on Malayan Banking Bhd (Maybank) with an unchanged fair value of RM8.40/share. This is based on an unchanged ROE of 11.4% for FY16F, leading to an unchanged fair P/BV of 1.3x.

- The company reiterated its intention to maintain a prudence stance and prioritise balance sheet preservation, rather than profit and loss, as part of the shift in its strategy given the more challenging economic environment currently. For its domestic market in Malaysia, the company hinted that its recent corporate loans applications are more related to existing projects, rather than new projects.

- In addition, the company is also taking a much more cautious view on working capital loans, with a more rigorous enquiries being adopted by the credit assessment in terms of end usage of the working capital loans. Thus, the company anticipates that working capital loans’ pace of growth may not match those in the recent past.

- In terms of the impaired loans trend in Indonesia, the company believes asset quality issues will likely persist going into 2016, due mainly to prevailing weak commodity prices.

- In terms of Malaysia operations, the company hints that Malaysia’s asset quality trend is still looking healthy. It is however scrutinising selected areas, including a couple of SME accounts, working capital loans in relation to property development, and the retail, textile and jewellery segments. This is on top of the specific accounts in shipping and oil and gas which the company hinted that it has been monitoring, at its latest briefing.

- It has not experienced any major broad-based increase in any particular segments in Malaysia. However, the company alluded that loan loss provisioning is likely to remain at elevated levels – similar to 1H2015’s given the lack of good lumpy recoveries. Thus, it expects credit costs to likely be closer to 33bps – at the higher end of its 30bps-33bps guidance for FY15F.

- There is now a more definite timeline in terms of its incorporation of a subsidiary in Singapore, as Maybank is now required to have a fully operational subsidiary in Singapore by 1H2017. However, the company does not expect to undertake any major equity rights exercise, as it plans to maintain its dividend reinvestment plan (DRP) to sustain its capital requirements. We maintain HOLD.

Source: AmeSecurities Research - 7 Oct 2015