Malayan Banking (Maybank) Valuation

Dilution from private placement

We are reducing our FY13 EPS forecast and target price by 3% due to dilution from Maybank’s private placement of new shares at RM8.88per share. Our target price has been reduced from RM9.25 to RM9.00 per share. We maintain a HOLD rating as Maybank remains one of our preferred banking stocksfor its defensiveness and relatively strong loan growth momentum.

Private placement of new shares
- Maybank completed a placement of new shares yesterday to domestic and foreign institutional investors: 412m new shares at RM8.88  per share to raise gross proceeds of RM3.66bn. The demand must have been good, as the indicated placement was for 300m new shares at RM8.80 per share. 
-  The proceeds are to be used for working capital. 
- As Maybank’s capital adequacy ratio appears comfortable e.g. core equity capital ratio of 9.2% v Basel III’s minimum requirement of  7% by 2019, we think that the reason for this private placement could be either (i) just to take advantage of bullish market sentiment to raise some money at a good price (refer below under “valuation and recommendation”) and in a fast way as one does not know when the
markets may reverse or (ii) closing date for Maybank’s dividend reinvestment plan (DRP) for its interim dividend per share of 32 sen  less 25% tax is 10 Oct 2012; this represents a dividend payout ratio (DPR) of 68% amounting to net dividend of RM1.9bn; as we have argued, Maybank cannot sustainably declare such a high DPR (we have assumed a DPR of only 50% in our forecasts), unless the reinvestment rate by shareholders continues to be high e.g. previous  dividend reinvestment rate was 88.5%; otherwise, Maybank would be short of capitalfor asset growth, and would either have to lower its future DPR or raise funds via new equity issuance.

maybank analysis

Impact on estimates
- We are reducing our FY13 EPS forecast by 3% from 76.9 sen to 74.6 sen, due to dilution from the private placement. We have raised our FY13 net profit forecast assuming interest savings of 4.5% p.a. on the RM3.66bn proceeds, but this is not enough to compensate for the enlarged share capitalfrom the new placement shares. As the private placement will only be completed mid-October 2012, we are not adjusting our FY12 EPS forecast as the impact for just over 2 months is
- We have correspondingly reduced our FY13 net DPS forecast by 3% as we continue to assume a DPR of 50%. We have also raised our NTA per share forecasts by 23 sen to account for the placement.
- Our EPS and DPS forecasts have yet to take into account dilution from the impending DRP, as we will only know the reinvestment rate after 10 Oct 2012.

Valuation and recommendation
- We are reducing our target price by 3% from RM9.25  to RM9.00 per share. This follows from our 3% reduction in FY13 EPS forecast,as we still value Maybank on an unchanged 2013 P/E of 12x.

- We maintain a HOLD as Maybank remains one of our preferred banking stocks for its defensiveness and relatively strong loan growth momentum. Maybank’s share price is unchanged from our last Results Review dated 17 Aug 2012. The placement price of RM8.88 per share was a good price for Maybank as it is just a 1% discount to our ex-private placement target price of RM9.00.

by ECMLIbra