May 31, 2013

Maybank Result - Maintain Buy

Strong dividend yield intact
RM10.08 Price Target : 12-month RM 11.80

•  1Q13 earnings in line; provisions remained low and non-interest income still lagged
•  Expect loan growth and corporate activities to pickup in 2H 2013
•  Maintain BUY and RM11.80 TP; top pick for the sector

buy maybank

Highlights
Modest start.
1Q13 net profit is 24% of our and consensus’ estimates. NIM and net interest income was stable q-o-q, while lower non-interest income (softer mandates in 1Q13)was offset by low provisions. Pre-provision profit was flat q-o-q. Provision remained low but there was an uptick in absolute impaired loans (largely working capital loans to the domestic manufacturing sector) and gross NPL ratio inched up to 1.9% from 1.8%.

Loans grew 1.4% q-o-q.Growth was modest, driven by domestic retail (mortgage and auto finance) and SMEloans, and commercial loans in Singapore. Meanwhile, corporatebanking in Indonesia was weak. Deposits grew faster (+2.6% q-o-q) than loans, lowering loan-to-deposit ratio to 89% from 90% in 4Q12. Generally, fixed deposits grew faster than CASA acrossthe regions in 1Q13.

Group CET-1 at 10.1% (assuming 85% reinvestment rate), while Tier-1 CAR and total CAR stood at 12.0% and 14.8%, respectively, based on BNM Basel III rules (applied transition arrangement). No dividend was declared in the quarter. The 6th DRP is pending acceptance by shareholders.

Our View
Expect stronger earnings in 2H 2013.  . .  . We expect domestic loan growth and corporate activities to pick up in the next few quarters, and support NIM and non-interest income, but there is risk of NIM compression. 1Q is seasonally softer in Indonesia, and similarly, we expect loan growth (especially corporate) to pick up.

We expect MAY to continue the DRP (dividend reinvestment plan) given the strong take-up rates (average 85%) and it remains a good capital management tool.

Recommendation
Maintain BUY and RM11.80 TP. Our TP is based on the Gordon Growth Model and assumes 14.5% ROE, 7% long term growth and 10.5% cost of equity. MAY remains our top pick in the sector; the potential kicker from regional contribution is not fully reflected, while it offers the highest dividend yield in the sector based on 70% payout assumption.

by HDBS Vickers