KUALA LUMPUR (April 25): CIMB Equities Research could raise its target price for Malayan Banking Bhd (Maybank) to between RM9.37 and RM9.55 following a potential listing of its insurance unit, Etiqa.

The target price is not far from the current market price of RM9.40, says CIMB Research.

In CIMB Research's report dated April 19, it had rated the prospect of the listing as positive following market talk that Maybank could list its insurance unit, Etiqa.

"If this materialises, we believe it would be positive for Maybank as it would enable the group to unlock the value of its investment in this entity," said CIMB Research in its report dated April 24.

"We estimate that Maybank's potential gains from the deal would be in the region of RM1.7 billion to RM3.5 billion (17-35 sen per share), assuming that Etiqa lists at 1.5 times to 2 times book," it added.

In the same report, CIMB Research downgraded Maybank to "hold" from "add" due to its strong share price performance year to date (YTD) that has outperformed the KLCI.

As of April 21, 2017, Maybank's share price was up 14.6% YTD, more than double the 7% rise in the KLCI over the same period. Its share price closed at RM9.40 on April 21, ahead of the RM9.20 target price.

"As such, we believe that the expected recovery in FY17 net profit growth is priced in as its FY18 price earnings is almost two standard deviations above the five-year average. We retain our FY17-19 earnings per share forecasts and dividend discount model based target price of RM9.20. We prefer RHB Bank for exposure to Malaysian banks," said CIMB Research.

"Our views on the earnings prospects of Maybank in 2017 are unchanged. We continue to project a recovery in the group's net profit growth from a decline of 1.4% in FY16 to an expansion of 8% in FY17," the research house added.

It said the key driver for FY17 earnings is likely to be the expected normalisation of loan loss provisioning (LLP).

"We forecast a 1.1% drop in Maybank's LLP in FY17, compared to a 68.3% jump in FY16," it said.