themalaysianreserve.com

The Maybank Group delivered another strong financial performance for the year ended Dec 31, 2011, compared to the previous corresponding period, with profit before tax (PBT) and profit attributable to equity holders of the bank rising by 20.1% and 20% respectively.

Earnings per share was up by 13.8% to 34.4 sen. Growth in profit was spurred by higher net income which climbed 21.6% and a decline of 13.9% in allowance for losses on loans despite an increase of 25.7% in overhead expenses.

Net income advanced 21.6% on the back of a 16.2% rise in total net fund-based income as a result of stronger loan growth.

Insurance income from a group level increased by 227.8% boosted by life/family fund surplus transfer from revenue account of RM178.3 million for the six-month financial period 2011 (compared to nil in the previous corresponding period) and a one-off RM98.3 million net surplus adjustment arising from the adoption of new Valuation Guidelines issued by Bank Negara Malaysia with effect from July 1, 2011.

Non-interest income and fee income from Islamic banking operations increased by 19.4% and 32.9% respectively, underpinned by rising fee income and the contribution by Maybank Kim Eng Holdings Ltd.

In the previous corresponding period, Kim Eng Group’s financial results were not consolidated as the Kim Eng Group acquisition was only completed in May 2011.

Overhead expenses were up 25.7%, with the inclusion of overhead expenses of Kim Eng Group. Overhead expenses excluding Kim Eng Group would amount to a 13.8% increase.

The group’s cost to income ratio for the financial period was 49.8% (excluding amortisation of intangibles for Bank Internasional Indonesia (BII) and Kim Eng).

Allowance for losses on loans declined 13.9%, attributable to higher recoveries and lower individual allowances but was mitigated by the increase in collective allowances.

Asset quality continued to improve with the net impaired loan ratio dropping to 1.86% in December 2011 compared to 2.25% in June 2011.

Return on equity (ROE) increased to 16.2% (annualised) from 15.2% in the previous financial year, exceeding the targeted ROE of 16%. The overseas operations revenue contribution increased to 36% during the six-month period ended Dec 31, 2011, compared to 33% in the corresponding period, while PBT contribution remained unchanged at 27%.

Singapore’s operations saw contribution in revenue and PBT increase from 11% to 16% and from 14% to 16% respectively.

Indonesia’s operations contributed 15% of the group revenue compared to 16% in the previous corresponding period. However, PBT contribution rose from 3% to 5%.

Other markets contributed revenue and PBT of 5% and 6% respectively, compared to 6% and 10% respectively previously.

The group’s total asset as at Dec 31, 2011, expanded by RM39.3 billion or 9.5% to RM451.3 billion from RM412 billion as at June 30, 2011. The growth in total assets was attributed to higher growth in net loans, advances and financing, securities portfolio and cash and short-term funds of 8.1%, 11.5% and 26.5% respectively.

MIDF Research Sdn Bhd in a report in November 2012 said the company reported a net profit of RM1.5 billion for the third-quarter ended Sept 30, 2012 (3Q12), on the back of higher net interest income and lower loan loss provisioning.

However, loan growth somewhat moderated in the 3Q at an annualised growth rate of 10.4% compared to 2Q12 at 15%.

MIDF Research house has a fair value of RM10 for the company based on a price to book ratio of 1.9 times implying a price earnings ratio of 13.2 times and ROE of 16% with a ‘Buy’ recommendation.

The regional expansion of Maybank has been favourable to analysts covering the stock despite a moderate slowdown in loans growth. The investment banking operations are also expected to do well as initial public offers (IPOs) and other fund raising activities are expected to rise going forward, according to an analyst with a local stockbroking company.

Meanwhile, Affin Investment Bank Bhd has a price target of RM9.16 on the stock based on price to book ratio of 1.56 times and ROE of 12.7%.

The research house remains optimistic on the growth of the company’s fee based and non interest income.

One of the key risks that the company faces is that it has to meet Indonesia’s central bank's requirement to pare its holding in BII which currently stands at around 97%. Affin estimates a maximum loss of RM790 million or 11 sen per share should a minimum stake of 15% be sold at the maximum loss limit of 10% below Maybank’s initial investment value in BII.


SWOT ANALYSIS FOR MALAYAN BANKING BHD
STRENGTHS
— Strong regional presence, facilitates future growth
— Leader in Islamic banking, strives be a leader in global Islamic banking
WEAKNESSES
— Net interest margin compression
— Not meaningful contribution from associate companies in Vietnam and Pakistan
OPPORTUNITIES
— Potential growth in fast growing markets like Indonesia
— Growth opportunities in Islamic banking
THREATS
— Potential sizing down of stake in Indonesia’s BII resulting in losses
— Stiffer competition domestically resulting in net interest margin compression