KUCHING: Maybank Bhd (Maybank) is expected to benefit from the upgrade of its IT infrastructure and core banking systems within a few years to function seamlessly across the region.HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) said in its research report yesterday that the exercise was expected to enhance efficiency by realigning some of its business lines.
For example, the retail business could encompass consumer and small business accounts, while there should be a single reporting line for commercial and corporate banking accounts. This would allow easier follow-up on the growth of corporate clients to tap cross-selling opportunities.
On its overseas ventures, Maybank was expected to benefit from Indonesia’s Bank International Indonesia (BII). BII was inten-ding to grow its commercial and corporate business by targeting the mid-market Chinese businessmen.
Its annualised loan book for its 2010 financial year was expected to grow by 23 per cent while it targeted to grow its loans by at least 25 per cent per annum. This would be sufficient to neutralise the earnings of Maybank within three years of acquisition.
BII would be making US$150 million rights issue with the proceeds being used to repay its US$150 million sub-debt. BII’s non-performing loans had also improved significantly due to improved approval, moni-toring, collection system, and it re-initiated tie-ups with motorcycle dealers.
There was a sharp improvement at Wahana Ottomitra Multiartha (WOM) financing unit that had caused severe provi-sioning issues at BII prior to the acquisition. The research did not expect any further impairment or lumpy provision charges at BII.
On the other hand, the research house reported that the international business continued to be driven largely by the Singapore and Indonesia. Maybank Indonesia made up 28 per cent of pre-tax profit.
For the first half of the financial year 2010, the Singapore unit contributed 16 per cent of pre-tax profit while the Indonesia contributed eight per cent.
Furthermore, although Maybank’s non-interest income had some element of volatility because of certain instruments in which it had positions for hedging pur-poses, it was concluded that 75 per cent of its non-interest income were recurring.
The non-recurring income included a set of currency swaps that were related to foreign currency funds raised for the acquisition of BII that was exposed to the ringgit and US$ movements.
Separately there was a set of interest rate swaps that Maybank entered into in which interest rate movements could cause volatility in unrealised mark-to-market gains or losses on securities and derivatives.
It stated that Maybank had one of the lowest cost deposits ratio of 37 per cent among banks and deposit market share of 22 per cent. It had also substantial portion of variable rate loans that had put Maybank in a prime position to benefit from interest rate hikes.
On the other hand, the research house did not see any effect to Maybank following its action to reduce the stake in BII to 80 per cent. It was unlikely that Maybank would take BII private because there were no explicit rules of compulsory acquisition, it added.
Going forward, Maybank’s operating costs were expected to remain high over the next two to three years. The cost-to-income projection ratio for Maybank was 52 per cent over the next three years. Under normalised conditions, Maybank’s cost-to-income ratio should be below 45 per cent.
Furthermore, the recent interim gross dividend of 11 sen per share was equivalent to 42 per cent of first half of 2010’s earnings.
The research house trimmed its dividend payout assumption to 50 per cent from 60 per cent for the period 2010-2012 with dividend per share of 32 sen, 36 sen and 42 sen respectively. The yields were expected to be in the range of four to six per cent.
There was a proposal of reinvesting the dividend to allow shareholders to reinvest their dividend in new ordinary shares of Maybank. This would enlarge Maybank’s share base and strengthen its capital position as well as its liquidity.
However, Maybank would need to seek approval from Bank Negara each time it declared dividends that would increase its issued and paid-up capital.
Maybank articulated three key return on equity benchmark targets of 13, 15 and 18 per cent for the period 2012-2015. The research house was of the opinion that this could drive Maybank to new highs, it added.
As a result, the research house raised the earnings forecast for the group by one to eight per cent for the period 2010-2012 on the back of high non-interest income and stronger loan growth. There was also a loan projection growth of 12 per cent to 15 per cent for the same period.
Maybank remained an attractive laggard big cap compared with CIMB due to the fact that it was one the cheapest big cap banks. It downgraded the target price to RM9 per share after imputing higher return on equity and growth expectations.