Maybank: After writedowns, time to log profits

After writedowns, time to log profits

By Adeline Paul Raj
Published: 2009/08/27


With the issue of impairment charges settled, Malayan Banking management's focus for the current fiscal year would be earnings deliverance, says an analyst with AmResearch


MALAYAN Banking Bhd (Maybank) (1155), the country's top lender, must focus on delivering earnings at its newly-acquired banks, particularly Bank Internasional Indonesia (BII), now that it has gotten the issue of impairment charges out of the way, analysts said.

The issue of how much impairment charges Maybank would have had to make, particularly for BII, had been one of the biggest things weighing the stock in recent months.

In the end, the charges - which is the difference between what it paid for the banks and their actual fair value - came in within, albeit at the higher end of, analysts' expectations.

Maybank had decided to "bite the bullet" by taking a huge RM1.97 billion impairment charge for its investments in BII and MCB Bank in Pakistan.
This pushed the group into the red in its final quarter, and re-duced earnings for the full year ended June 30 2009 to just RM692 million, its lowest annual profit in a decade.

With that issue out of the way, AmResearch upgraded its call on Maybank's stock to a "hold" from "sell" previously, and raised the target price to RM7.10 from RM4.60.

"With the issue of impairment charges settled, management's focus for (the current fiscal year) would be earnings deliverance," its banking analyst Fiona Leong said in a research note yesterday.

The stock's share price performance, however, is likely to track the FTSE Bursa Malaysia KLCI index until there is a firm uptrend in operating profits, she added.

She expects Maybank's net profit to rise 18 per cent to RM2.56 billion in the current year and RM2.83 billion in the next. This is after factoring in better-than-expected non-interest income from the treasury operations and capital market-related businesses.

Analysts, however, expect Maybank's return-on-equity (ROE), a measure of how well its re-invested earnings are used to generate additional earnings, to be "sub-par" over the next two to three years following its expen-sive acquisitions.

They said the management had indicated that it would take a few years before ROE, which stood at just 10 per cent last year, could go back up to pre-acquisition levels of about 14 per cent.

The bank is targeting an ROE of 11 per cent for the current year.

Analysts are also concerned that the group may have to do more cleaning up of its loan books, particularly for BII, in the current year. It already set aside large loan loss provisions of about RM1.7 billion last year compared with RM810 million previously.

"In view of its sub-par ROEs and relatively long gestation period for expensive overseas acquisitions to start contributing meaningfully, we prefer Public Bank and Bumiputra-Commerce for cheaper valuations and comparatively higher ROEs among the larger banks," OSK Research's analyst Keith Wee said.

OSK maintained its "neutral" call on the stock, but raised the target price to RM6.20 from RM5.15.

Maybank closed at RM6.47 yesterday, five sen lower than the previous day.