MAYBANK (1155) : Malayan Banking Bhd - Impact of 1MDB exposure
Target RM12.50 (Stock Rating: ADD)
The market is concerned about Maybank’s exposure to 1MDB as the local press reported that 1MDB failed to pay a RM2bn loan due on 31 Dec 14. We gather that Maybank’s loan exposure to 1MDB could amount to RM5.5bn. A 10% provisioning for this would trim Maybank’s FY15 net profit by 5.6%, based on our estimates. However, the above risks would be reduced by the government’s guarantee and 1MDB’s listing plans. Our DDM-based target price (COE of 9.7%; LT growth of 4%) is intact. Despite this possible hiccup, Maybank remains an Add and our top pick for the sector, as it would benefit from the expected improvement in the Indonesian operating environment and regional expansion drive.
What Happened
The Financial Daily quoted sources stating that 1MDB failed (for the second time) to pay a RM2bn loan to local lenders due on 31 Dec 2014. It was reported that 1MDB has been given until 30 Jan 2015 to settle the debt, which was originally due on 30 Nov 2014. Maybank and RHB are the lead lenders.
What We Think
We contacted Maybank’s management for comment on the above but it declined to disclose any details of its 1MDB loans due to the Banking Secrecy Act. However, we gathered from The Star article that Maybank’s loan exposure to 1MDB totals RM5.5bn. We estimate that a 10% provision for the loans would increase Maybank’s credit costs by RM550m and reduce FY15 net profit by 5.6%. In the worst-case scenario, a full impairment of the loans would slash Maybank’s FY15 net profit by 56% and lower our target price by around 44 sen to RM12.06. However, we take the comfort in the fact that Maybank’s exposure to 1MDB is guaranteed by the government of Abu Dhabi. Furthermore, the loans would be settled if the 1MDB IPO is successfully implemented this year. Hence, we do not see a high likelihood of full impairment for the loans.
What You Should Do
Stay invested in Maybank, given its bright regional growth prospects in the longer term, especially in Indonesia. We think that the risk of possible provisions from its exposure to 1MDB would be reduced by the government’s guarantee and its IPO plans. Any weakness in share price from the concerns would be a buying opportunity, in our view.
Source: CIMB Daybreak - 07 January 2015
Target RM12.50 (Stock Rating: ADD)
The market is concerned about Maybank’s exposure to 1MDB as the local press reported that 1MDB failed to pay a RM2bn loan due on 31 Dec 14. We gather that Maybank’s loan exposure to 1MDB could amount to RM5.5bn. A 10% provisioning for this would trim Maybank’s FY15 net profit by 5.6%, based on our estimates. However, the above risks would be reduced by the government’s guarantee and 1MDB’s listing plans. Our DDM-based target price (COE of 9.7%; LT growth of 4%) is intact. Despite this possible hiccup, Maybank remains an Add and our top pick for the sector, as it would benefit from the expected improvement in the Indonesian operating environment and regional expansion drive.
What Happened
The Financial Daily quoted sources stating that 1MDB failed (for the second time) to pay a RM2bn loan to local lenders due on 31 Dec 2014. It was reported that 1MDB has been given until 30 Jan 2015 to settle the debt, which was originally due on 30 Nov 2014. Maybank and RHB are the lead lenders.
What We Think
We contacted Maybank’s management for comment on the above but it declined to disclose any details of its 1MDB loans due to the Banking Secrecy Act. However, we gathered from The Star article that Maybank’s loan exposure to 1MDB totals RM5.5bn. We estimate that a 10% provision for the loans would increase Maybank’s credit costs by RM550m and reduce FY15 net profit by 5.6%. In the worst-case scenario, a full impairment of the loans would slash Maybank’s FY15 net profit by 56% and lower our target price by around 44 sen to RM12.06. However, we take the comfort in the fact that Maybank’s exposure to 1MDB is guaranteed by the government of Abu Dhabi. Furthermore, the loans would be settled if the 1MDB IPO is successfully implemented this year. Hence, we do not see a high likelihood of full impairment for the loans.
What You Should Do
Stay invested in Maybank, given its bright regional growth prospects in the longer term, especially in Indonesia. We think that the risk of possible provisions from its exposure to 1MDB would be reduced by the government’s guarantee and its IPO plans. Any weakness in share price from the concerns would be a buying opportunity, in our view.
Source: CIMB Daybreak - 07 January 2015
