- We maintain our HOLD rating on Malayan Banking Bhd (Maybank), with a slightly higher fair value of RM10.30/share (from RM10.20 previously), as we have tweaked our dividend forecasts. This is based on higher ROE of 14.2% (from 14.0%) FY13F, with an unchanged fair P/BV at 1.9x.

- At our recent company visit, Maybank alluded that loans pipeline is expected to be better, but there is likely to be some lag effect even after the general election.

- This is due to time required in the loan disbursement process, as well as a natural time lag in terms of project financing loans. Thus, Maybank believes that a significant pick-up in loan disbursements will only be seen in 2H of this year.

- Investment banking pipeline remains healthy although the equity deal size is expected to be mid-sized rather than the large IPO deals seen last year (Felda, IHH). The 1Q investment banking division did well due to the bond division.

- Maybank remains hopeful that it now should be able to sustain its dividend reinvestment plan (DRP) with continuous support from shareholders, and higher dividend payout ratio than its official policy of 40% to 60%. We have now revised our dividend payout ratio forecast to 75% to 76% (from 50-55% previously) forFY13F-FY15F. Recall the dividend payout ratio had been higher in the past three years at 76% to 80% due to the DRP plan.

- Our new net DPS forecast is now 55-65sen FY13FFY15F, vs. 40-44sen earlier. Consensus DPS forecast is 53-58sen respectively.

- Maybank also reaffirmed that its proceeds from the share placement is for organic growth and has not taken into account any potential M&A, or possible incorporation of subsidiary in Singapore. The company is still engaging with regulators in Singapore regarding a possible local incorporation of its Singapore operations.

- The company visit indicates signs of stronger loansgrowth ahead, although this is likely to be only in 2H. In terms of the freshly impaired manufacturing loans in 1Q, these were backed by sufficient collaterals. Credit costs was low at 11bps in the 1QFY13, as there were sufficient collateral values for these new impaired loans and thus there was no requirement to make individual assessment provisioning. This contributed to lower loan loss cover of 99% in 1QFY13 from 106% in 4QFY12. Maintain HOLD.

Source: AmeSecurities