Tuesday, November 15, 2011

MayBank: Solid And Strong Performance

15 November 2011
Price Target: RM8.87
Share price: RM8.25


Results
# 1Q12/11 net profit of RM1,286.4m (+11.4% qoq; +25.1% yoy) was slightly above HLIB (26.7% of annualized full year forecast) and consensus (26.6%) forecasts. However, given guidance of higher credit charge ahead, we considered the results to be in line with HLIB and consensus.

Deviations
Largely in line.

Dividend
None.

Highlights
# 1QFY12/11 earnings were boosted by lower provisions while all business segments and main markets recorded improved performances. Only blemish was WOM Finance
(under BII) and An Bihn Bank which recorded lower profits but contributions were insignificant.

# Loans growth continued to be strong and ahead of 12% KPI with yoy domestic growth exceeding industry average. Deposits growth also strong and slightly ahead of 14% KPI.

# Despite external headwinds, the group is confident about domestic demand and achieving its FY12/11 16% ROE KPI.

# NIM pressure higher in Indonesia as magnitude of erosion in Malaysia reducing while Singapore is focusing on profitable loan segments.

# Credit charge of 30bps more sustainable level over longer term vis-à-vis 15bps (annualized) in 1QFY12/11.

# Asset quality ratios improved. Although there was increase in absolute IL (mainly from WOM Finance), overall asset quality is intact and maintainable.

# Exposure to EU and UK is only RM2.2bn (0.4% of total assets) and mostly in AFS securities (with MTM loss of RM48m charged to reserves).

# Comfortable with its capital ratios (which should support 12% annual growth) and proforma BASEL III core equity ratio of circa 8%, unless BNM sets a more stringent ratio.

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

Forecasts
Unchanged.

Rating - BUY
Positives
Earnings growth from Indonesia while domestic operations also improving, new business divisions to better address competitive pressure and focus on customer centric. DRP provides downside protection.

Negatives
Have not entirely mitigated the dilution impact from debt raising and cash call.

Valuation
Target price unchanged at RM8.87 based on Gordon Growth with ROE of 15.1% and WACC of 10.2%.



Source: HLIB Research

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