Mar 27, 2010

Maybank dividend reinvest commentary

Maybank (RM6.89; Hold; Price Target: RM7.30; MAY MK)
75px-Central_Bank_of_Malaysia_headquarters%2C_Kuala_Lumpur[1] Proposed dividend reinvestment plan Maybank has proposed a dividend reinvestment plan that allows its shareholders to reinvest their dividends into new ordinary shares in Maybank.

Whether a cash dividend is announced, the Board has the absolute discretion to determine that the proposed dividend reinvestment plan will apply to the whole or a portion of the cash dividend and where applicable any remaining portion will be paid in cash. Note that there is no tax advantage to be gained in either option, be it cash or shares.

The proposed dividend reinvestment plan would enlarge Maybank’s share base and strengthen its capital position, as well as the liquidity of Maybank’s shares on Bursa Malaysia.

The issue price of the new Maybank shares to be issued under the proposed dividend reinvestment plan shall not be more than 10% discount to the five day volume weighted average market price of Maybank shares prior to the price fixing date. The proposed dividend reinvestment plan is conditional upon approvals from Bank Negara, Bursa, shareholders and other relevant authorities, if required.

In addition, a separate approval from Bank Negara would be sought for each declaration of dividend and increase in the issued and paid up capital of Maybank arising from the proposed dividend reinvestment plan. 

We view this positively as one of the methods of capital management which could potentially enhance Maybank’s capital position over the longer term. Note that Singapore banks have given their shareholders an option for script dividends each time a dividend is declared.

Maintain Hold on Maybank with TP at RM7.30. Our RM7.30 target price is derived from the Gordon Growth Model, and implies sustainable 14.5% ROE, 6% long term growth, and 10.6% cost of equity.

Source: HDBS Vickers