Results

2QFY13 net profit of RM1,567.7m (+4.1% qoq; +9% yoy) took 1HFY13 to RM3,073.9m (+10.4% yoy), in line or accounted for 49% and 48.3% of HLIB and consensus forecast, respectively.

Deviations

Largely in line.

Dividend

Single-tier interim dividend of 22.5 sen or yield of 2.3% (vs. 32 sen gross or net of 24 sen) of which 16 sen is under DRP and 6.5 sen cash.

Highlights

2Q earnings growth remained strong with all underlying trends heading the right direction while contributions from all business segments (except international banking) were higher. If not for the provision of two lumpy accounts, earnings growth would have been stronger.

1HFY13 ROE behind KPI but management is confident of catching up as annualized loans growth has accelerated and pipeline remained strong, hence, no changes to FY13 KPIs.

The main blemish is the continued rise in impaired loans amount (for second consecutive quarters) but unlike 1Q, ratio managed to improve slightly. Maybank also took a conservative stance to make full provision for two lumpy accounts, resulting in 1H credit charge slightly higher than guidance. However, management is not changing the credit charge guidance and assured that the above was not systemic while there are no signs of systemic asset quality deterioration. Moreover, it also has a robust risk management as well as risk-based pricing to ensure that asset quality is intact.

Dividend policy remained 40-60% but with DRP, can pay higher.

While open and interested in M&A (especially in Thailand commercial banking), there is no specific talks and it is not in a hurry. Despite more palatable valuations, potential benefits and value add opportunities are equally important.

Risks

Unexpected jump in impaired loans, lower than expected loan growth and significant slowdown in capital market.

Forecasts

Unchanged.

Rating

BUY

Positives – Improving domestic operations and expanding regional footprint, new divisions to better address competition and customer centric and new IB outfit gaining traction. DRP provides downside protection while giving additional boost (from the discount pricing of DRP) to industry leading dividend yield.

Negatives – DRP will drag ROE, recent deterioration in asset quality and exposure to Indonesia (fortunately it is less than 10% of profit).

Valuation

Target price maintained at RM11.36 based on Gordon Growth with ROE of 15.0% and WACC of 9.7%.

Source: Hong Leong Investment Bank Research - 22 Aug 2013