We maintain our BUY call on Maybank, with a revised  FV of MYR11.00(from  MYR11.30).  Maybank  offers  investors well-balanced  exposure  to both the retail and corporate segments, and is also a major beneficiary when  capital  markets  pick  up  again.  Its  valuations  are  also  more palatable  among  the  large-cap  banking  stocks.  The  near-term headwinds we see include the currently quiet capital market.

• Business  lending  and  capital  market  activities  still  subdued.  A consistent  message  that  came  out  of  our  recent  meetings  with  bankswas  that  business  lending  has  been  subdued  while  capital  markets remain  quiet,  albeit  with  some  improvement  from  1Q14.  Like  most banks, Maybank’s 1Q14 results were muted due to softer capital  market conditions, and the above suggests that growing income could continue to be a challenge in the upcoming 2Q14 results.
• Expect NIM pressure to pick up ahead. As at end-March 2014, the two largest  banks,  Maybank  and  CIMB  (CIMB  MK,  NEUTRAL,  FV: MYR7.75),  reported  a  rise  in  their  loan-to-deposit  ratios  (LDR)  to  91% (+110bps  q-o-q)  and  89.4%  (+250bps  q-o-q)  respectively.  We  expect these  banks  to  grow  deposits  more  aggressively  ahead,  thus  possibly exerting more upward pressure on the industry’s funding cost. Together with the dilutive impact that new, lower-yielding loans will have on asset yields, we think net interest margin (NIM) pressure could pick up ahead.
• Capital. We believe focus could return to the issue of local incorporation of  Maybank’s  operations  in  Singapore.  This  is  on  the  back  of  further details released by the Monetary Authority of Singapore on its proposed framework  for  systemically  important  banks.  Maybank  reported  a  fully loaded  CET-1  ratio  of  8.3%  at  the  bank  level  as  at  31  March  2014. Assuming  a  CET-1  ratio  of  9%  for  Singapore,  our  rough  calculations indicate a 20-40bps impact to bank-level CET-1 ratio.
• Forecasts. We tweak lower our FY14F/FY15F net profit projections by 3%/2% respectively as we: i) assume a wider NIM compression of 9bpsfor FY14F (-5bps previously) followed by a further 4bps contraction for FY15F (from  -3bps); ii) reduce our FY14F non-interest income by 2.5%; and iii) marginally lower our estimate for overheads.
• Investment  case.  We  trim  our  GGM-derived  FV  to  MYR11.00  from MYR11.30  after  we  adjust  down  our  ROE  assumption  to  13.8%  from 14%. Maybank is our preferred pick among the large-cap banks as it has a  more  balanced  business  model,  and  is  also  a  key  beneficiary  when capital markets perk up again. Maintain Buy.

Source: RHB