Highlights

• Conference call on the recently completed placement of 412m new shares at RM8.88 (in line with our earlier assumption of 412m at RM8.85 for sensitivity analysis), raising RM3.66bn.
• Contrary to our earlier speculation, management clarified that although there was invitation to bid for Bank of Ayudhya (BAY), it is not interested, has not signed any NDA nor in negotiation with General Electric.
• It also stressed that there is no M&A on the card and dismissed rumours that the placement is in preparation for an RM1.1bn impairment loss on Kim Eng investment.
• Although it is still interested in the Thailand market, current preference is to wait for 2014 (when it will be allowed to open more branches) and focuses on organic growth. However, if opportunity arise in future, affordability, control and opportunity to make a difference would be considered.
• It was preemptive ahead of Basel III as we as anticipated strong growth in BII and potential local incorporation in Singapore. With the buffer, it will be more flexible in mobilizing capital to underpin organic growth areas.
• Jun 12 CET1 of 7.97% (lower than 9.13% disclosed in 1HFY12 briefing) and RWCAR of 15.66% will increase 130bps to 9.27% and 16.96% respectively, lower than our earlier estimate of more than 170bps. Main reason is due to adoption of BNM’s more stringent Basel III concept paper (guidelines not yet finalized and exclude counter cyclical buffer). The group will be comfortable with CET1 of 7-8%.
• As expected, no change to dividend policy and DRP.
• Although a drag to ROE, it will position Maybank in a strong capital position to fund its growth and regional aspirations. Thus, we remained positive about its prospects and believe it provides a rare combination of growth and yield.

Risks

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

Forecasts

• Factored in the placement and new shares from DRP. FY12-14 EPS cut by 5-6% but Gordon Growth target price raised by 0.8% as higher book more than offset lower ROE.

Rating

BUY

• Positives – Earnings growth from Indonesia with improving domestic operations, new divisions to better address competition and customer centric and new IB outfit gaining traction. DRP provides downside protection while giving additional boost (from the discount pricing of DRP) to yield.
• Negatives – DRP and placement will drag ROE as well as Indonesia WOM’s asset quality a concern.

Valuation

• Target price of RM10.21 is based on Gordon Growth with ROE of 14.9% and WACC of 9.9%.

Source: Hong Leong Investment Bank Research - 10 Oct 2012