Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD
Research House: AMMB
Malayan Banking Bhd
(April 22, RM8.65)
Maintain buy at RM8.67 with fair value RM10.40: Malayan Banking Bhd (Maybank) announced that it has successfully priced its maiden issuance of S$1 billion (RM2.4 billion) capital subordinated notes (SG$ subnotes) at 3.8%.
Maybank reported the subnote has received a positive response with an oversubscription of 1.7 times the issuance size from investors in Singapore, Malaysia and Hong Kong.
This is the maiden issue under Maybank's US$2 billion (RM6 billion) multicurrency medium-term note programme.
The SG$ subnotes will qualify as Tier-2 capital for Maybank. The subnotes carry a tenure of 10 years from the issue date on a 10 non-callable 5 basis. As this is a subordinated issue, the SG$ subnotes have been accorded a rating of BBB+ by both Standard & Poor's Ratings Services and Fitch Ratings.
The issuance is in line with our expectations. We believe this will be used as part of its funding for its acquisition of 100% of Kim Eng Research for S$1.79 billion, which was announced in early January 2011. Maybank had hinted at that time that part of the funding would likely be through the issuance of foreign currency sub-debt.
We had earlier assumed RM2 billion in subnotes at a cost of funds of 4.5% in our earnings model. Thus, the announcement is positive in the sense that pricing of 3.8% is lower than our expectations.
The SG$ subnotes will also allow Maybank to patch back its total capital adequacy ratio (CAR) at the bank level, which would decline by 2.2ppt to 11.44%, from 13.68% as at end-December 2010 assuming the Kim Eng acquisition had taken place without the SG$ subnotes. With the successful issuance of the subnotes, and assuming the Kim Eng acquisition goes through, we estimate total CAR at the bank level to drop by only one percentage point to 12.7% from 13.68% as at end-December 2010. With this, we expect Maybank to finance the remaining portion of Kim Eng through internal funds.
The news is also positive as we expect Maybank's capacity to pay dividends to be maintained. We affirm our 'buy' rating on Maybank with an unchanged fair value of RM10.40. This is pegged to an unchanged fair price-to-book value of 2.3 times, based on a calendarised return on equity of 15.8% for 2011F. ' AmResearch, April 22
This article appeared in The Edge Financial Daily, April 25, 2011.
Company Name: MALAYAN BANKING BHD
Research House: AMMB
Malayan Banking Bhd
(April 22, RM8.65)
Maintain buy at RM8.67 with fair value RM10.40: Malayan Banking Bhd (Maybank) announced that it has successfully priced its maiden issuance of S$1 billion (RM2.4 billion) capital subordinated notes (SG$ subnotes) at 3.8%.
Maybank reported the subnote has received a positive response with an oversubscription of 1.7 times the issuance size from investors in Singapore, Malaysia and Hong Kong.
This is the maiden issue under Maybank's US$2 billion (RM6 billion) multicurrency medium-term note programme.
The SG$ subnotes will qualify as Tier-2 capital for Maybank. The subnotes carry a tenure of 10 years from the issue date on a 10 non-callable 5 basis. As this is a subordinated issue, the SG$ subnotes have been accorded a rating of BBB+ by both Standard & Poor's Ratings Services and Fitch Ratings.
The issuance is in line with our expectations. We believe this will be used as part of its funding for its acquisition of 100% of Kim Eng Research for S$1.79 billion, which was announced in early January 2011. Maybank had hinted at that time that part of the funding would likely be through the issuance of foreign currency sub-debt.
We had earlier assumed RM2 billion in subnotes at a cost of funds of 4.5% in our earnings model. Thus, the announcement is positive in the sense that pricing of 3.8% is lower than our expectations.
The SG$ subnotes will also allow Maybank to patch back its total capital adequacy ratio (CAR) at the bank level, which would decline by 2.2ppt to 11.44%, from 13.68% as at end-December 2010 assuming the Kim Eng acquisition had taken place without the SG$ subnotes. With the successful issuance of the subnotes, and assuming the Kim Eng acquisition goes through, we estimate total CAR at the bank level to drop by only one percentage point to 12.7% from 13.68% as at end-December 2010. With this, we expect Maybank to finance the remaining portion of Kim Eng through internal funds.
The news is also positive as we expect Maybank's capacity to pay dividends to be maintained. We affirm our 'buy' rating on Maybank with an unchanged fair value of RM10.40. This is pegged to an unchanged fair price-to-book value of 2.3 times, based on a calendarised return on equity of 15.8% for 2011F. ' AmResearch, April 22
This article appeared in The Edge Financial Daily, April 25, 2011.
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