Journey to Wealth

Malayan Banking Bhd - OUTPERFORM - 25 May 2012

kiasutrader
Publish date: Mon, 28 May 2012, 10:00 AM

Period   1Q12

Actual vs.  Expectations
Within expectations. 1Q12 PAT of RM1,347m made up 27% of the consensus' forecast and 26% that of ours. 

Dividends  No dividend declared.

Key Result Highlights
The 1Q12 net interest income contracted by 6.1% QoQ to RM2,020.7m. On the same comparison, net interest margin was also lower by 24bps to 2.37% given the more moderated loan growth of 1.5% in the quarter.

The squeeze in the NIM was mainly driven by 1) lower rates in assets that cut the NIM by 8bps, 2) additional sub-debt cost being raised during the quarter (-4bps), 3) a one-off unwinding interest adjustment under FRS139 (-10bps) and from other accounting treatments (-2bps).

The total group loans grew 6.1% (on an annualised basis), which was a disappointment as it is below the KPI  target  of  16.2%.    However,  loan  demand  is  seeing momentum in 2Q2012, and  hence management still aiming for a growth target in the range of 13-15% for 2012.  

We note that the non-interest incomes were strong at RM1,654.5m (+7.5% QoQ and +54.5% YoY), thanks to a  stronger Kim Eng's  contribution  in 1Q12.   As a  result, the group's total incomes grew 27.7% YoY and -1.6% QoQ with fee-based incomes contributing 40.9% of the total incomes (vs. 37.4% in 4QCY11).  

1Q12 overhead cost of RM2.0b was on the high side with a cost-to-income ratio of 48.7% (vs. 49.9% in 4QFP11), mainly due to IT expenses.  

The NPL outstanding balance of RM7.0b was lower in 1Q12 (from RM8.04b in 4QCY11), with the net impairment ratio improving 29bps QoQ to 1.57%. The annualised credit charged-off rate is estimated at only 28bps to gross loans. Loan loss coverage meanwhile was recorded at 95%. 

Outlook  Earnings upside could come from a lower credit charged-off rate going forward as well as a stronger than expected fee-based incomes after the acquisition of Kim Eng.  A pro-forma Core Capital Ratio of 10.2% should see Maybank well positioned to meet the 1 January 2013 Basel 3 minimum requirement of 7% along with its organic credit growth.  Furthermore, its RM1.9b unutilised tax credit should sustain the dividend payout ratio of 80%.  The stock offers 5.3% dividend yield.  

Change to Forecasts
There are no changes to our earnings estimates.

Rating  MAINTAIN OUTPERFORM
Our OUTPERFORM rating is maintained as the current share price implies a 22.3% total upside (together with a 5.0% net div. yield).

Valuation   Target Price of RM10.40, based on 2.0x FY13 P/BV, implying 14.9 FY13 PER, is retained.

Risks  Unexpected slowdown in fee incomes.  

Source: Kenanga
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