We  downgrade  our  recommendation  on  Maybank  to  NEUTRAL  from Buy.  There  is  no  change  to  our  MYR11.40  FV  (15x  CY14  EPS)  but following the stock’s outperformance YTD, its current valuation appears fair to us. The sharp rise in foreign shareholding over the past year may also lead to greater potential share price volatility when US QE tapering begins, but its yields should provide downside support.  
 
- Key  trends  to  watch  out  for  in  upcoming  2Q13  results.  Maybank  is expected  to  announce  its  2QFY13  results  on  21  Aug.  We  expect  a sequential net profit growth  in the low- to mid-single digits, which would bring  1H  net  profit  to  around  49-50%  of  our  and  consensus’  full-year estimates. Income growth would be key to driving sequential bottomline growth  as  we  expect  loan  impairment  allowances  to  rise  from  the  low levels in 1Q13. In 1Q13, the group’s credit cost of 11bps was below the 30bps  guided  as  well  as  our  annualised  assumption.  It  would  also  be interesting  to  see  how  the  rise  in  bond  yields  impacts  Maybank,  which has  the  largest  holdings  of  Malaysian  government  securities  that  are carried  at  fair  value  accounting  among  the  banks.  On  the  flipside,  loan growth is expected to pick up pace (1Q13: 5.9% annualised vs 12% full-year  guidance).  Bank  Negara  statistics  point  to  stronger  business lending q-o-q in 2Q13. Regionally, the Singapore banks reported healthy domestic  corporate  loan  growth  while  BII  saw  a  strong  pickup  in corporate (+23% q-o-q) and SME (+9% q-o-q) lending.

- Dividends. We expect Maybank to declare an interim net DPS of 23 sen (2Q12:  24  sen,  net),  assuming  a  full-year  net  payout  of  70%.  This  is above  Maybank’s 40-60%  payout  policy  but  slightly  below  its  recent payout track record of 74-80%.  

- Forecasts  and  investment case.  No  change  to  our  earnings  forecasts and MYR11.40 FV (15x 2014 EPS). We continue to see Maybank as one of the major beneficiaries of the Economic Transformation Programme’s rollout, thanks to its strong corporate presence. That said, the stock is up 13.9%  YTD  against  +5.9%  for  the  FBM  KLCI.  Following  the  run-up  in share price, the stock’s valuations now appear fair, in our view. Maybank is currently trading at a 2014 P/E and P/BV of 14x and 1.8x respectively, in line with its 10-year median P/E and P/BV levels. Meanwhile, we note that foreign shareholding levels have risen significantly over the past one year  and  may  lead  to  greater  potential  volatility  in  its  share  price, especially when the US begins to taper off quantitative easing. As such, we are downgrading our recommendation to NEUTRAL from Buy.

Source: RHB