• Maybank to sell its entire equity interest in Maybank (PNG) Ltd (MPNG) and Maybank Property (PNG) Ltd (MPPNG) to Kina Ventures for Kina319m or RM418m cash.

• MPNG has been given approval to provide full range of commercial banking activities in Papua New Guinea in Oct 1994 while MPPNG is involved in property investment.

Comments

• We are slightly positive about the disposal. Although MPNG is involved in commercial banking, it can be considered as “non-core” as PNG loan book is only 0.1% of total loans and based on the minute loan book, contribution to overall group’s earnings would likely be insignificant as well.

• The sale would release valuable capital to support and underpin its core operations at minimal impact to earnings.

• At this juncture, we are unclear if it would result in any profit or loss but given that the sale consideration is based on the net assets of MPNG, we believe any such profit or loss is likely to be insignificant.

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 Indonesia asset quality (but BII is only ~7% 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 - 19 May 2015