MAYBANK – Fundamental Analysis (3 Aug 2016)

 

Excel – Download the analysis file

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:

  • 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).
  • In my opinion, fair value of MAYBANK is from 8.8 to 9.3 (Uncertainty Risk is from MEDIUM to HIGH).
  • 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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