Maybank - BUY - 15 May 2008

Maybank - 9M08 net profit below expectations (Results Note)



Price: RM7.80

Target Price: RM10.10

Recommendation: BUY



· 9M08 net profit of RM2,225.0m was below expectations being 10% and 15% below our forecast and consensus of RM3,280.5m and RM3,342.0m respectively on an annualised basis. This was largely due to unrealised loss on revaluation of securities and derivatives of RM353.4m which arose from the fixed rate investments which had floating interest swaps that was marked to market when interest rates fell. Excluding this loss, the 9M08 net profit would have been slightly ahead of forecast and consensus at 78% and 77% respectively.

· YoY, 9M08 net profit was 4.7% higher. Traditional core lending business performed well with loans growth of 9.7% with slightly lower NIM of 2.7% compared to 2.8% for 9M07. Transactional non interest income was 16% higher on the back of strong performance in the retail segment. However, the unrealised loss on revaluation of derivatives resulted in an overall 5.7% decline in 9M08 non interest income in 9M08. Excluding this loss 9M08 net profit would have been 21% high YoY.

· YoY 3Q08 net profit was 0.8% lower. Similar to the 9M08 net profit the recognition of the unrealised loss took the shine of the otherwise strong performance in loans growth and net interest income. Operating expense was 13.9% higher as Cost to Income ratio rose 3.6% to 47.3%. NIM fell only 0.2% to 2.72%.

· QoQ 3Q08 was 3.8% although at pretax profit level it was 1.3% lower. Income tax was significantly lower by 17.7% due to overprovision in 2Q08 and also lower non-deductible expenses.

· We are leaving our forecast unchanged. Further losses on revaluation of derivatives are unlikely as US dollar interest rate is expected to stabilise. Write backs could be possible while RM140m gain on disposal of RM1.4b consumer NPLs will be recognised in 4Q08.

· No more sale of NPL for FY08 but could resume in FY09. Otherwise, its retail segment continues to be the bright spot with NPL ratio falling further from 2.43% with higher transactional non interest income expected.

· Maintain BUY with target price of RM10.10 using a 2.3x FY08E P/BV which is a 15% premium to the average banking sector FY08E P/BV of 2.0x.





KENANGA INVESTMENT BANK BERHAD (15678-H)