MAYBANK (1155) MALAYAN BANKING BHD
KUALA LUMPUR: UOB Kay Hian Malaysia Research is maintaining its Buy recommendation on Malayan Banking (Maybank) with a target price of RM10.80.
It said on Friday Maybank’s Indonesian subsidiary, Bank Internasional Indonesia (BII), released its 9M14 results that were below expectations as earnings continued to be impacted by rising provisions.
“BII’s 9M14 earnings were hit by provisions. It continued to report a weak set of results with 9M14 net profit declining 68% on-year.
“The weaker-than-expected results were largely due to a sharp spike in provisions, which rose 153% on-year resulting in 9M14 credit cost coming in at 200bp, significantly higher than our expected 85bp,” said the research house.
UOB Kay Hian Malaysia Research said the weakness in NPL was concentrated within the bank’s corporate structured trade and commodity client portfolio in both the oil & gas and mining sectors.
In an attempt to manage the NPL risk in this segment, the bank has shut down this unit and is working on recovering efforts.
Despite a commendable loan growth of 25% on-year, this came at the expense of severe margin compression of 43bp to 4.32% due to higher funding cost to support the group’s robust loan growth.
Loan-to-deposit ratio (LDR) rose to 94% (+5 percentage points) as loans grew at a faster clip vs deposits at 14% vs 7% respectively.
“Downside risk mitigated as BII is a relatively small contributor to group earnings.
“As BII’s earnings make up a relatively small 6% of Maybank’s earnings, assuming growth challenges intensify in Indonesia and BII’s earnings were to drop 70% on-year in 2014 in a worst-case scenario, this would translate into a relatively mild 4% downside to our 2014 net profit forecast for Maybank,” it said.
UOB Kay Hian Research maintained its Buy and target price of RM10.80 (or 1.94 times FY14F price-to-book and return on equity of 14.6%), implying 13.8 times FY14F price-to-earnings, and underpinned by an attractive net dividend yield of 5.7%.
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