Analysts trim earnings forecast on Maybank

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KUALA LUMPUR (Aug 28): Analysts have cut their earnings forecasts for Malayan Banking Bhd (Maybank), following the country’s largest banking group warning of a softer second half of the year amid the challenging global outlook and weak domestic consumer sentiment.

CIMB Equity Research has cut its target price for Maybank to RM10 from RM11.40, expecting weak net profit growth for FY15. However, it maintains the “add” call on the stock.

“The management guides for a challenging outlook for 2H15, leading us to project weak net profit growth of only 1.4% for FY15. However, we envisage better net profit growth of 11.3% in FY16,” said the research house in a note today.

CIMB noted that Maybank has lowered its return on equity (ROE) forecast to between 12% and 13%, from its previous forecast of 13% to 14%, and the group’s loan growth to 8% to 9%, from 9% to 10%, and Malaysian loan growth of 6% to 7%, compared to 8% to 9%.

The research house said the only key performance indicator (KPI) that was revised upwards was for deposit growth at 10% to 11%, from 9% to 10% previously.

“We think that this was because of the rise in loan-to-deposit ratio to 94.2% in June, which signifies tighter liquidity, following the strong loan expansion in 1HFY15. Faster deposit growth in 2HFY15 compared to loan expansion would exert further pressure on its net interest margins,” said CIMB.

At yesterday’s Maybank’s (fundamental: 1.4; valuation: 2.25) financial result briefing for the first half of its financial year ended June 30 (1HFY15), the banking group said it expects the market to moderate in the latter half of the year as consumer sentiment remains dampened.

The bank had lowered its KPIs for FY15, to account for the slower growth outlook, leading analysts to revise their earnings projections for the group.

Similarly, Hong Leong Investment Bank Bhd (HLIB) also cut its target price for Maybank to RM10.27 from RM11.30 and had cut its earnings forecast for the bank by 8.4% to 10% for FY15 to FY17, to reflect the revision of Maybank’s KPIs.

However, the research house said it is maintaining its “buy” call on the stock despite the lower forecasts, and sees the group’s improving domestic operations, regional expansion plans, new divisions to better address competition and Maybank’s new investment banking outfit gaining traction as positive catalysts.

“Target price cut to RM10.27 (vs RM11.30) based on Gordon Growth with ROE of 11.7% and WACC of 8.8%. Despite that, maintain 'buy' call as valuation now more compelling with attractive yield,” it said.

Maybank share price has taken a nose dive this month, falling off from RM9.20 early of August to a low of RM8.20. The stock is traded at RM8.77 up 12 sen or 1.4% as at 12 noon, bringing its market capitalisation to RM83.65 billion.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)