May 18, 2011

Maybank: Edging ahead of expectations -maintain Buy by Amwatch

We are maintaining our BUY rating on Malayan Banking Bhd (Maybank) with an unchanged fair value of RM10.40/share. This is based on a calendarised ROE of 15.9% for 2011F, leading to unchanged fair P/BV valuation of 2.3x. Maybank posted net earnings of RM1,142mil (+2% QoQ, +11% YoY) in 3QFY11. Annualised net earnings were just a tad (-2.6%) below our estimate but 2.2% above consensus’ forecast.

We would consider earnings to be ahead of expectations.We estimate a –16bps QoQ drop in net interest margin (NIM) in 3QFY11, likely from competitive pressure. We are notoverly concerned about the NIM contraction, as this was in line with industry trend. This would also be offset partly by a stronger-than-expected annualised loans growth, which has now accelerated to 17.8% in this quarter. Loan loss provision fell by 39% QoQ to only RM72mil in 3QFY11. We think that that loan loss provision was exceptionally low, but this was partly backed by better impaired loans data. Overall gross impaired loans balance continues to recover, with a decrease of 7.6% QoQ. This was mainly from recoveries, which is positive. Gross impaired loans ratio was at 3.7% in 3QFY11, much lower than 2QFY11’s 4.2%. Maybank’s results for 3QFY11 is slightly above expectations in our view, with the surprise mainly coming from a low loan loss provision. Nevertheless, this was supported by improved headline asset quality data.

We maintain BUY on Maybank. Main rerating catalyst in our view will still be better-thanexpected dividend

by: Amwatch