Maybank Fair Value RM10.40

MALAYAN BANKING BHD Stock Code 1155 Price: RM8.73 Fair Value: RM10.40
BII’s 4QFY10 results - In rebuilding mode

•  Malayan Banking Bhd’s (Maybank) 97.5%-owned PT Bank Internasional Indonesia (BII) released its full-year results for FYE12/10, with a turnaround in net earnings to a profit of  Rp461bil for FY10, from a loss of Rp41bil in FY09. However, BII’s net earnings are a tad below expectations (9MFY10: Rp415bil). On a QoQ basis, net earnings declined by 48.7%, to Rp46bil in 4QFY10, from Rp89.3bil in 3QFY10. 
•  This came about from higher expenses, both at the loan loss provisioning as well as overheads lines. Loan loss provisioning rose by 7.8% QoQ to Rp497bil in 4QFY10 (3QFY10: Rp461bil). We believe this is related to BII’s conversion to new accounting standard PSAK No 50 and 55 in 4QFY10, with the company now adopting effective interest rates, collective impairment and individual impairment basis. Loan loss cover is now consequently at 85.91% as at end-December 2010 from an estimated 117.8% a year ago. Net NPL ratio is still low though at 1.74% end-December 2010 versus 1.87% as at end-September 2010.  
•  Overhead expenses increased 9.4% QoQ, which was likely due to an expansion in new branches in 4QFY10. The total number of new branches opened in FY10 was 72 (9MFY10: 50), which means that 22 were opened in 4QFY10 alone. BII is estimated to have increased its network to 325 branches from an estimated 253 a year ago. 
•  Overall loans expanded 5.5% QoQ. On a yearly basis, BII recorded loans growth of 35% FY10, which was above the industry’s 20% in 2010. Deposit registered a growth of 7.7% QoQ and 26.5% YoY, leading to loan-to-deposit ratio of 89.0% as at end-December 2010. NIM was softer at 5.89% FY10 vs. 6.1% in FY09. Given the higher loans growth, net interest income still managed to record a decent 19% YoY rise in FY10. 
•  To sum up, we think BII’s net earnings, while below expectations, are reasonable considering its recent conversion to new accounting standards and given that it is currently investing in network expansion. In any case, BII is not a major contributor to Maybank’s net earnings (circa 3.0% in September 2010 quarter). We estimate BII’s contribution at 1.3% of Maybank’s net earnings for this December 2010 quarter, based on our current forecasts. Our positive stance on Maybank is still based on the Malaysia’s Economic Transformation Programme (ETP), with Maybank positioned to benefit from it given that it is the largest bank in Malaysia. We maintain BUY on Maybank.

Below: BII Result (click to enlarge)maybank-financial-result

Below: Maybank Valuation (click to enlarge):
maybank-valuation    by: AM Research

Jan 15, 2011 ..Malayan Banking Bhd (Maybank) is now in the initial stage of identifying the ideal number of branches it plans to open in India and their locations.

President and chief executive officer Datuk Seri Abdul Wahid Omar said the company already had a license to operate commercial banks in India and would make inroad into the country. read

Jan 7, 2011 ...Malayan Banking Bhd (Maybank), the country's largest bank in assets, is planning to take over Singapore stockbroker Kim Eng ...