- 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.

- Maybank’s 3QFY15’s net earnings included a one-off gain of RM197m in relation to its Papua New Guinea (PNG) unit. Stripping this off, the annualised net earnings were 1.4% below our forecasts but 1.5% above consensus forecasts. The 9M net earnings made up 76.4% of our estimate and 78.7% consensus’ forecast for FY15F.

- There was a big jump in forex gain, to RM608.3mil in 3QFY15, compared with RM84.0mil in 2QFY15. We believe this was in relation to the revaluation of its USD assets, which comprise an estimated 20% of total assets, and which are not fully hedged. The revaluation gain was brought about by the significant change in the Ringgit- USD rate during the quarter, as the Ringgit-USD rate closed the quarter at 4.46 as at end-September 2015, compared to end-June 2015’s 3.75. The company confirmed that the bulk of these forex gains are unrealised.

- There was also a large increase in loan loss provision, to RM667.9mil in 3QFY15 vs. RM301.0mil in 2QFY15. Maybank said the increase was mainly due to lesser recoveries in this quarter. Furthermore, there was also a large increase on the collective assessment allowance line (RM478mil in 3QFY15 vs. a writeback of RM51.8mil in 2QFY15).

- Maybank clarified that it took into account the current slowing macro environment, as well as ongoing monthly assessment of individual borrowers in assessing overall impairment requirement. We estimate credit costs at 60bps in 3QFY15, compared with 28bps in 2QFY15. This is above the company’s target of 30bps to 33bps for FY15F. The company indicated that the outlook in terms of credit costs remains uncertain.

- Overall, the 3QFY15 was boosted by a one-off gain from the sale of its PNG unit, as well as large forex.

- Looking ahead, the company said it remained focus on its strategic priorities, which are to be more selective on asset growth and focus on deposit taking. Maybank said there may be downside risks including macro volatility closer to policy decisions at year-end, while foreign exchange and rate movements will impact some aspects of performance. It expects asset quality to be subject to market volatility. We maintain HOLD.

Source: AmeSecurities Research - 27 Nov 2015