KUCHING: Malayan Banking Bhd’s (Maybank) significant positive earnings surprised for two consecutive quarters but its return on equity (ROE) is expected to jump back to the 15 per cent level.
ROBUST STANDING: RHB Research says Maybank registers significant positive earnings surprises for two consecutive quarters but its ROE is expected to jump back to the 15 per cent level.
According to RHB Research Institute Sdn Bhd (RHB Research), with the strong organic growth from domestic operations, Singapore and especially BII (Bank Internasional Indonesia), the negative impact from the expensive acquisitions would be more than nullified as financial year 2011 earnings per share (EPS) was expected to exceed pre-acquisition levels.
It stated its price earnings ratio (PER) and price-to-book ratio (P/B) no longer deserve to be the only stock trading near one standard deviation below its post Asian financial crisis means. RHB Research, expected some heavy catch up in share price performance and preferred Maybank as its top pick in the sector.
To recap, the group proposed a recurrent and optional dividend reinvestment plan (DRP) that allows shareholders to reinvest their dividend into new shares. The issue price of the new share would not be more than 10 per cent discount to the 5-day volume weighted average market price (VWAMP) prior to the Price Fixing Date.
The board would have absolute discretion to determine whether this plan was applicable to the whole or portion (electable portion) of declared cash dividend, added the research firm.
In addition, shareholders would have the option to either elect to receive the electable portion in cash or in new Maybank shares. Fractional shares would be paid in cash while shareholders can trade odd lots on the Odd Lot Market with minimum size of one share.
Assuming in the most extreme case whereby the board decided to apply this plan to 100 per cent of financial year 2011-2012 cash dividend (based on the research firm projections) and all shareholders elected to accept the dividend in shares, its financial year 2011-2012 EPS would be diluted by five per cent and 10 per cent respectively.
However, both its Tier-1 and RWCAR (Risk Weighted Capital-Adequacy Ratio) capital ratios for financial year 2011-2012 would be boosted by 130 basis points and 196 basis points respectively.
RHB Research believed that the board was unlikely to apply the plan to 100 per cent of cash dividend given the cash dividend requirement of its major shareholder.
Moreover, shareholders’ decision would depend on the magnitude of discount to the VWAMP as well as their view on Maybank share price’s short-term outlook given that the new shares would only be listed 30 trading days after the announcement of price fixing and books closure date.
Based on the 2010 general outlook, RHB Research pegged its target price at a fair value of RM8.96 based on 16 times (benchmark) of calendar year 2010 EPS.