MAYBANK – Fundamental Analysis (27 Jun 2016)

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Latest Financial – Q1 2016 Financial Report (27 May 2016)

FY16 Q1 Results Highlight:

  • In 1QFY16, Maybank reported an adjusted net profit of RM1,427m (-16% YoY, -5% QoQ). The 12% earning miss was mainly a result of punchy loan loss provisions. High loan loss provisions were mainly driven by rescheduled and restructured loans from a few large exposures in the shipping, oil & gas and manufacturing segments mainly in Singapore.
  • eadline asset quality figures look disappointing. However, there was no broad based asset quality deterioration but several exposures – primarily in the shipping, oil & gas and manufacturing sector – were rescheduled and restructured and therefore classified as impaired. As a result, new non-performing loan (NPL) formation was high at 2.1% (annualized) and the NPL ratio for Maybank jumped to 2.1% from 1.9% a quarter ago. NPL coverage declined to 70% vs 72% a quarter ago. On the positive side, the fully loaded common equity tier 1 ratio (CET1) of Maybank increased to 12.4% (+40bp QoQ) which is a very healthy level.
  • Maybank has a guarded outlook for Singapore where 25% of its total loans are booked. Outlook on Singapore: Asset quality likely to deteriorate further as credit cycle turns with new non-performing asset (NPA) formation.
  • Group was behind its FY16 KPI targets for ROE, loan and deposit growth. The Group’s loan growth decelerated and was behind its target of 8-9% for FY16.This was also the case for its deposit growth which fell behind its growth target of 10-11%. Meanwhile, its annualised ROE is 9.3%. Management is maintaining its FY16 guidance for ROE, loan and deposit targets.

Valuation:

  • In my opinion, fair value of MAYBANK range from 9.1 to 9.4. Uncertainty risk of fair value is MEDIUM.

Going Forward:

  • On year-on-year basis, Singapore, Hong Kong and Indonesia were the highest in terms of contribution to the rise in overseas’s impaired loans. The significant rise in impaired loss in Singapore was due to the restructuring and rescheduling of loans to the Oil & Gas, Shipping and Manufacturing sectors, which although are still performing loans, there remains lack of clarity ahead if the cash flow positions of these loans can improve in 6 months time in order to reclassify the loans back as performing hence a write back in provisions. This is in view that commodity prices may continue to be volatile with global economic conditions remain slow, hence continuing to impact the cash flows of borrowers in the Oil & Gas sector and shipping companies related to commodities.
  • FY16 Guidance – For 2016, Maybank is guiding for slower loan growth of 8-9% (Malaysia 6-7%, Singapore 3-4%, Indonesia 11-13%), and slower deposit growth of 10-11%. In addition, with the challenging operating environment, ROE is also guided to be lower at 11-12%. NIM would likely edge lower on stiff deposit competition while credit costs are likely to remain elevated at current levels (40-50bps).
  • Due to its attractive dividend yield, healthy liquidity and strong capital position, I will continue to hold MAYBANK, and accumulate MAYBANK without increasing my average price too much.

At the time of writing, I owned shares of MAYBANK.

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