Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD
Research House: CITI GROUP
Malayan Banking Bhd (Maybank)
(May 12, RM7.60)
Reiterate buy at RM7.53 with target price of RM8.03: We had a recent meeting with Bank Internasional Indonesia (BII) management in Jakarta. Overall, we believe 2010 would be a good year for BII (2009: Rp41 million or RM14,435 net loss) as new management has begun driving business growth more aggressively since late-2009 and provisions are declining. Reiterate buy/low risk (1L) for Maybank with rejuvenated domestic operations being supported by steady improvement at BII, which is estimated to contribute 9% of group FY10E earnings.
BII has submitted to Bank Indonesia a loan growth target of 20%-25% for 2010E. This is ahead of the 18%-20% average that most banks have committed to Bank Indonesia but the management is optimistic its target can be achieved given the positive macro outlook.
BII intends to stay focused on core customer groups - consumers and small and medium enterprises (SMEs) (each 35%-36% of total loans). But there will be increased push into the SME space in new territories. While we see the growth potential, strong credit risk management would be vital for success.
The management expects some margin compression coming from lower lending yields as banks fight for loan growth. Areas more vulnerable to pressure are cars and 2-wheelers. With current account and savings account (CASA) of 42% and loan deposit ratio (LDR) of 80.6%, there could also be some funding pressure, but BII can get some well-priced funds from Maybank and the management is also considering issuance of subdebt. It had NIM (net interest margin) of 5.98% in 1Q10 (1Q09: 5.48%).
BII's management is working to lower its CTI (cost-to-income) to 61% for 2010E (1Q10: 64%; 1Q09: 66.5%). However, with expansion plans, CTI would only improve to 55%-57% in the next three to five years. The management budgeted credit cost of 220 basis points for 2010E (1Q10: 188bps; 2009: 447bps ) but indicated possible downside risk as real lending had only begun in Oct 2009.
Maybank is scheduled to release its 3QFY10 results today. Compared against 2QFY10's RM993.5 million, net profit is likely to be flat to slightly higher due to seasonal factors.
We expect a loan growth of 2.5%-3% quarter-on-quarter, stable NIM and lower provisions. But this would be moderated by lower non-interest income. Our forecast net profit for FY10E stands at RM3.34 billion with EPS (earnings per share) at 47 sen. - Citi Investment Research, May 10
This article appeared in The Edge Financial Daily, May 13, 2010.
Company Name: MALAYAN BANKING BHD
Research House: CITI GROUP
Malayan Banking Bhd (Maybank)
(May 12, RM7.60)
Reiterate buy at RM7.53 with target price of RM8.03: We had a recent meeting with Bank Internasional Indonesia (BII) management in Jakarta. Overall, we believe 2010 would be a good year for BII (2009: Rp41 million or RM14,435 net loss) as new management has begun driving business growth more aggressively since late-2009 and provisions are declining. Reiterate buy/low risk (1L) for Maybank with rejuvenated domestic operations being supported by steady improvement at BII, which is estimated to contribute 9% of group FY10E earnings.
BII has submitted to Bank Indonesia a loan growth target of 20%-25% for 2010E. This is ahead of the 18%-20% average that most banks have committed to Bank Indonesia but the management is optimistic its target can be achieved given the positive macro outlook.
BII intends to stay focused on core customer groups - consumers and small and medium enterprises (SMEs) (each 35%-36% of total loans). But there will be increased push into the SME space in new territories. While we see the growth potential, strong credit risk management would be vital for success.
The management expects some margin compression coming from lower lending yields as banks fight for loan growth. Areas more vulnerable to pressure are cars and 2-wheelers. With current account and savings account (CASA) of 42% and loan deposit ratio (LDR) of 80.6%, there could also be some funding pressure, but BII can get some well-priced funds from Maybank and the management is also considering issuance of subdebt. It had NIM (net interest margin) of 5.98% in 1Q10 (1Q09: 5.48%).
BII's management is working to lower its CTI (cost-to-income) to 61% for 2010E (1Q10: 64%; 1Q09: 66.5%). However, with expansion plans, CTI would only improve to 55%-57% in the next three to five years. The management budgeted credit cost of 220 basis points for 2010E (1Q10: 188bps; 2009: 447bps ) but indicated possible downside risk as real lending had only begun in Oct 2009.
Maybank is scheduled to release its 3QFY10 results today. Compared against 2QFY10's RM993.5 million, net profit is likely to be flat to slightly higher due to seasonal factors.
We expect a loan growth of 2.5%-3% quarter-on-quarter, stable NIM and lower provisions. But this would be moderated by lower non-interest income. Our forecast net profit for FY10E stands at RM3.34 billion with EPS (earnings per share) at 47 sen. - Citi Investment Research, May 10
This article appeared in The Edge Financial Daily, May 13, 2010.
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