CIMB Research retains Add for Maybank, sees recovery in EPS growth
KUALA LUMPUR: CIMB Equities Research is retaining its Add call for Malayan Banking Bhd (Maybank) as it forecasts a recovery in its FY17 earnings per share (EPS) growth to 5.7% from a decline of 5.7% in FY16.
“The potential listing of its insurance arm Etiqa could act as a rerating catalyst as it will help Maybank unlock the value of its investment in this unit,” it said on Thursday.
CIMB Research retained its EPS forecasts and dividend discount model-based target price of RM9.20.
“We are upbeat following our recent meeting with Maybank’s management, who reiterated its expectation of stronger loan growth and lower credit costs in 2017. This supports our view of a recovery in earnings in FY17F.
“The management is also guiding for a margin contraction of five to seven basis point for 2017, which in our view is reasonable given the negative impact from the rate cut in July 2016 and tight liquidity in the market,” it said.
It pointed out Maybank is targeting for loan growth of 6% to 7% in FY17, above the 5.7% achieved in FY16. However, it was more conservative with its projected loan growth of 3.3% for FY17F.
A one percentage point 1% increase in its forecast for loan growth will lift its projected FY17F netprofit by about 0.7%.
“The group also expects its credit charge-off rate to improve from 60bp in FY16 to a maximum of 50bp in FY17. Similarly, our forecast is more conservative, with a projected charge-off rate of 57bp for FY17F,” it said.
As for the potential listing of Etiqa, which was reported in The Star on April 15, CIMB Research was positive on the corporate exercise which could unlock the value of Maybank’s investment in the entity.
“We estimate that Maybank will book in a gain of RM1.7bil to RM3.5bil from its stake in Etiqa assuming that Etiqa is listed at 1.5 to two times book value and Maybank’s cost of investment equals Etiqa’s book value.
Maybank incurred a high loan loss provisioning (LLP) of RM865mil in 1Q16 due to the chunky provisioning of its restructured loans that totalled about RM800mil in Singapore.
Assuming that this did not recur in Q1, 2017, CIMB Research estimated its LLP declined to RM400mil to RM500mil in Q1, 2017, helping to fuel the on-year growth in its Q1, 2017 core net profit.
“We anticipate its Q1, 2017 core net profit to be close to the RM1.74bil registered in 4Q16,” it said.