Maybank  announced  that  the  group  is  selling  its  entire  equity  interest  in Maybank  (PNG)  Limited  and  Maybank  Property  (PNG)  Limited  to  Kina Ventures  Limited  for  a  cash  consideration  of  Kina  319m  (equivalent  to RM418m) under a share sale agreement on 18 May  2015. The final sale value  will  also  include  the  difference  in  the  net  asset  value  of  Maybank PNG  from  31  Dec  2014  until  the  completion  date  (expected  in  2H2015), upon  achieving  IT  and  operational  readiness  as  prescribed  in  the agreement. The disposal was  undertaken under the Group’s review of its international  operations  vis-à-vis  the  optimal  use  of  capital  and  meeting Basel 3 requirements. (Source: Bursa Malaysia)

Comments:  Though  the  PNG  unit  has  been  operating  profitably,  we understand  that  contribution  to  the  group’s  earnings  remain  insignificant. Based on the announcement, there will not be any material impact on the group’s  net  assets  or  earnings  for  2015  following  the  sale.

Any enhancement from the sale to its core tier 1 capital will also be minimal. As at  Dec14,  the  Maybank  Group  has  RM352.9bn  in  risk-weighted  assets (RWA), while capital adequacy ratios at the group level  –  CET1 11.39%, Tier-1  13.18%  and  Total  Capital  15.88%,  remain  ahead  of  Basel  3 requirements.

We  reiterate  our  HOLD  rating  on  Maybank  at  our  price target of RM8.55 based on a 1.35x P/BV target, on 2016’s ROE of 11.6%. The challenges in 2015 remain, owing to a lack of catalyst in the domestic capital  markets,  moderation  in  domestic  loan  growth  (as  the  GST implementation  slows  down  spending  and  business  expansion), competitive  pressure  from  bigger  Indonesian  banks  (on  BII’s  operations) and a decline in non-interest income.

Source: Affin Hwang Capital Research - 19 May 2015