News

• Malayan Banking Group (Maybank) announced yesterday that the Group had terminated the proposed disposal of 68.55% stake PT Wahana Ottomitra Multiartha TBK (WOM Finance) to Reliance Capital Management (RCM). (Source: Bursa Malaysia)

Comment

• Surprise cancellation. This is a negative surprise to us as we had expected the deal to be wrapped in 1Q17 after several months of negotiations on the terms. We believe both Maybank and RCM could not agree on the terms instead of pricing as Maybank was already prepared to incur loss through the disposal of the stake.

• Impact to financial. There will be no impact on Maybank’s financial in FY2017. As we have not factored in the disposal in our valuation, we leave our forecast unchanged. Given the termination of the deal, WOM Finance will remain as a Maybank subsidiary that provides motorcycle financing for new and used motorcycles.

• Adding pressure to asset quality. Given the subdued economic condition in Indonesia, we expect WOM Finance to continue exerting marginal drag on Maybank Indonesia’s asset quality which currently stood at 3.8%.

• Future disposal? We do not discount the possibility of another attempt to dispose WOM Finance in line with Maybank’s initiative to maximise its capital use and streamline its customer segmentation.

Risks

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

Forecasts

• Unchanged.

Rating

BUY ( ↔ )

• We continue to like Maybank given its well-balanced exposure in both retail and corporate segments. Maybank is the front runner beneficiary and the best proxy to ride on a gradual recovery in economic growth.

Valuation

• We maintain our TP of Maybank at RM9.45 based on Gordon Growth (WACC of 8.6% and ROE of 10.4%). We maintain BUY rating on Maybank

Source: Hong Leong Investment Bank Research - 5 May 2017