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Saturday, March 25, 2017

Malayan Banking - Up our ante in Maybank

Author: HLInvest   |   Publish date: Thu, 23 Mar 2017, 11:16 AM 


News

  • Favourable outlook. Maybank’s share price surged by 9% YTD to touch RM9.00 on 21 March (highest in 11 months), boosting Financial Index to outperform FBMKLCI (YTD: +9.6%). While the share price already touched our TP, we continue to see share price catalysts for Maybank, underpinned mainly by favorable outlook, especially on earnings recovery which to be driven by lower credit cost.
  • Fading headwind. Maybank endured a hard time in FY15 and FY16 due to higher credit cost, related to exposure in oil & gas sector that led to lowering of KPIs by management. We now deem that this headwind is now under control, as management already priced-in the lingering concerns over Singapore oil & gas and other high risk sector such as steel.
  • Eyeing influx of corporate deals. Given the potential large IPOs in the pipeline and M&A activities by GLCs to unlock their value, we expect Maybank to be one of the frontiers to benefit from these corporate exercises, leveraging on its expertise in managing high scale deals. Additionally, we expect IPO activities to escalate as companies taking advantage of recent improvement in investor sentiment and low funding cost reinforced by selective sector liberalization.
  • Proxy to economy. Investor sentiments have been improving due to better macro fundamentals. Given its prime position in the banking sector, Maybank will be the primary choice to finance the economic-related projects, namely construction. Maybank’s strong deposit franchise will enable them to finance the projects easily without having to issue bond/sukuk.
  • Return of foreigners. Foreign interest on Maybank has gained traction since early January, with foreign shareholding rising from 15.65% to 17.37% as of 17 March, the highest level in 9 months. Given the recent weakness in US dollar outlook and expectations of BNM measures to further stabilize ringgit, foreigners may continue to position with liquid banking stocks (i.e. Maybank) as proxy.
  • Higher valuations during upcycle. We opine that Maybank deserves to trade closer to their previous GDP upcycle (2013-2014) at 1.3x P/BV. During the GDP downcycle (2015-2016), banks valuations deteriorated accordingly, including Maybank with its P/BV traded below its 3-year average of 1.5x.

Risks

  • Unexpected jump in impaired loans, lower than expected loan growth and significant slowdown in capital market.

Forecasts

  • Unchanged.

Rating

BUY (  )
  • We continue to like Maybank given its well balance exposure in both retail and corporate segments. Maybank is the front runner beneficiary and the best proxy to ride on a gradual recovery in economic growth.

Valuation

  • We raise our TP for Maybank to RM9.45 (previously RM9.00) based on higher ROE of 10.4% and P/B 1.4x. We maintain BUY rating on Maybank.
Source: Hong Leong Investment Bank Research - 23 Mar 2017

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