THE BUZZ - Maybank held a conference call hosted by President and Chief Executive Officer Dato' Sri Abdul Wahid Omar yesterday, to explain the rationale behind the banking group's RM3.65bn private placement exercise and underline both its organic and inorganic growth strategies.

The factors driving the placement exercise were in line with what we envisaged:

Benchmarking against the region's banks. Although Maybank may seem overcapitalized compared to its larger banking peers domestically after the current share private placement exercise, the management has indicated that it would eventually strive to maintain capital buffers similar to its Singaporean peers over time in light of its expanding regional franchise.

Putting speculation to rest on M&A plans in Thailand. Given the intense media news flow on its potential bid for General Electric's (GE) 25% stake in Bank of Ayudhya (BAY), the management categorically denied that it had submitted any bid and even declined an invitation to participate in the bidding process, citing the following key concerns:  

Future growth strategies in Thailand. As highlighted in our earlier reports, management reaffirmed that its preferred strategy of eventually entering into Thailand's commercial banking space is likely to be a combination of the following: i) Organic branch expansion from zero base in 2014 onwards, and ii) inorganic growth via the potential acquisition of a smaller scale bank with turnaround potential, which may involve a smaller initial capital outlay and hence lower risk and EPS dilution, but which provides room for the group to seek exemptions in order to own a sizeable controlling stake of more than 50%. The group would then gradually leverage on its already-strong lead in retail broking to build up organic scale over time. As BAY remains the sole acquisition opportunity for now (which Maybank has no interest in undertaking), the management stated that the market should not expect it to participate in any banking M&As in Thailand over the immediate term, unless opportunities that fit in with their strategic direction materialize.  

To maintain high dividend payouts. We estimate that the completion of the RM3.6bn share private placement will provide the group with the scope to maintain both its current relatively high dividend payout ratio of 60% to 75% while sustaining Risk Weighted Asset growth rates at above 12% and CT1E above the 9% threshold. Given the need to potentially scale up its capital base further, the group intends to maintain its existing dividend reinvestment plan which will consequently ensure that dividend payouts remain significantly above its peers.

Maintain BUY. Incorporating its enlarged share base post-upsized share private placement, we revised our FV downwards from RM10.30 to RM9.87 (1.87x FY12 PBV, 14.3% ROE, 9.5% COE and 4% growth rates) as we scale back our ROE assumption arising from the larger share base, from our initial 15.8% to 14.3%. However, we maintain our BUY recommendation as we remain positive over the long term, on its proposed private placement exercise since:  i) the quantum is relatively manageable and would only be marginally EPS-dilutive (-4.4%), ii) it places the group well ahead of the curve in achieving strong capital buffers before BNM implements counter cyclical buffers from 2014 onwards, and iii) it allows the group to sustain growth rates above its peers, thereby consistently driving earnings upside surprises and eventual ROE re-rating once stronger growth from its stronger capital base kicks in.  

Source: OSK