AmWatch - Malayan Banking : Share price likely to be supported by upcoming dividend, 31 Jul 2014

STOCK FOCUS OF THE DAY

Malayan Banking : Share price likely to be supported by upcoming dividend      Hold

We maintain HOLD on Malayan Banking Bhd with an unchanged fair value of RM9.80/share. This is based on an unchanged ROE of 13.5% for FY14F and an unchanged fair P/BV of 1.8x.

We expect Maybank to continue to experience slower consumer loans growth on a YoY basis in 2Q. This is mainly due to ongoing effects of more prudent household measures. We believe that trade finance volume and value are likely to have not picked up as well in 2Q. Note that Maybank has the highest market share in terms of trade finance in Malaysia – at 23.7% in February 2014. This may be partly due to effects of slower trade in China.

As for the corporate segment, the company hinted that despite some drawdowns, these have been partly offset by settlements and repayments. This may be due to companies deferring capex plans in the earlier part of the year. Thus, we believe that the 2Q may be reflective of 1Q’s trend. 1Q’s annualised loans growth was only 5.3%, below the group’s loans growth target of 13.0% for FY14F.

With the recent rate hike, the company believes that it may experience low single-digit YOY compression in terms of NIM.  This is ahead of its earlier target NIM compression of 10bps YoY for FY14F. Non-interest income trend may be slower on a YoY basis as well, due to a more subdued stockbroking environment, lower gains on the treasury division and lower loan processing fees.

We believe that a slower revenue line is likely within expectations (our loans growth forecast is 6.4% for FY14F). Given a high earnings base of at least RM6bil, we reckon that Maybank’s net earnings should be able to withstand any possible slowdown when compared to that in 2008. In the meantime, we believe that the share price may be underpinned by the upcoming interim dividend.

NEWS HIGHLIGHTS

IJM Plantations : Beefing up Indonesian ops

Malaysian Airline System : Management to show gratitude by giving staff ex-gratia payment of RM2,000 each

CIMB Group Holdings : Not pursuing Philippine banks for now

Aviation Sector : Qatar Airways upbeat on Malaysia prospects