Kenanga upgrades Maybank to outperform with RM10.20 target price

Maybank has been upgraded by Kenanga to outperform with a share price target of RM10.20. — Reuters pic
Maybank has been upgraded by Kenanga to outperform with a target of RM10.20. — Reuters pic

, Feb 27 — Kenanga Research has upgraded Malayan Bhd (Maybank) to outperform with a target price of RM10.20 to reflect better asset quality and lower impairment allowances ahead.

“Our FY19 estimate earnings are raised slightly 1.0 per cent to RM8.24 billion in the face of a moderate economy and volatile capital markets. We introduced our FY20 estimate earnings, where we expect challenging growth due to higher credit charge,” it said in a note today.

Kenanga Research outlined the risks to its rating call, namely constricting margins, lower-than-expected loans and deposits growth rates, worse-than-expected deterioration in asset quality, a further slowdown in capital market activities, and adverse currency fluctuations.

Higher loans growth, lower overhead costs as well as lower provisioning had boosted Maybank’s net profit to record high at RM8.11 billion for the ended Dec 31, 2018 (FY18), up 7.9 per cent from RM7.52 billion a year earlier.

Revenue increased to RM47.32 billion from RM45.58 billion previously.

The country’s largest banking group also saw its total loans growing by 4.8 per cent in FY18, as compared with a growth of only 1.7 per cent a year earlier, due to continued growth in loans across its three home markets — (4.8 per cent), (4.5 per cent) and Indonesia (7.0 per cent).

Meanwhile, Public Investment Bank said while Maybank has had admirable levels of success in some of its key growth initiatives, it reckoned near-term earnings potential might be hampered by margin compressions and asset quality challenges.

“Our neutral call and dividend discount-derived target price of RM9.90 are unchanged. Forward price-earnings valuations vis-à-vis the broader market is attractive nonetheless,” it said in a note today.

Maybank’s gross impaired loans ratio has improved in the fourth quarter to 2.41 per cent compared to 2.65 per cent in the preceding quarter.

“We are still concerned as the amount of performing loans having to be impaired due to obligatory conditions being triggered remain decidedly high, suggestive of weak asset quality.

“The group’s exposure to the oil and gas sector poses the greatest risk to the balance sheet and/or earnings. Only 58 per cent of borrowers are classified as normal, 28 per cent are under the watch list, 1.0 per cent are special mention accounts while 13 per cent have been impaired,” said Public Investment Bank.

As at 10.25am, Maybank gained three sen to RM9.58, with 1.46 million shares changing hands. — Bernama

Source: The Malay Mail Online

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