Maybank (Buy)

Has Options To Boost Capital

• 2QFY12 results in line with HLIB but above consensus.
• Interim dividend 32 sen gross of which 28 sen is under DRP, 67.9% payout ratio more than our 60% assumption.
• Strong earnings growth from domestic and international; fund and fee-based; and line of business except CFS - skewed by internal adjustments, abolishment of HP’s rule 78 and competitive pressure. 
• 1H ROE ahead of KPI but 2H ROE would be dragged by higher capital base. Nevertheless, quantum of profitability is sustainable.
• Group is ready for Basel III.  BNM concept paper in May is more stringent but still under consultation and premature to evaluate impact. 
• Management reiterates existing capital management able to sustain growth with equity raising optional.
• DRP will continue after 2013 and intends to meet or exceed policy payout ratio.
• Locally incorporate Singapore operations?  Yes if have flexibility for new branches but potential capital requirement depends on structure. 
• Maintain Buy and target price of RM10.12 based on Gordon Growth with ROE of 15.6% and WACC of 9.9%.

Source: Hong Leong Investment Bank Research - 17 August 2012