Malayan Banking Bhd (Jan 4, RM6.86)
Reaffirm buy at RM6.86, target price at RM8.10: It was recently reported by Reuters that Maybank’s 20% associate, MCB Bank had failed in its bid to purchase the operations of Royal Bank of Scotland (RBS) Pakistan after missing the Dec 31, 2009 deadline to close the transaction.
Failure to obtain the necessary regulatory approvals was cited as the primary reason. In August last year, MCB Bank had agreed to buy 99.37% of RBS Pakistan shares for about US$87 million (RM297.54 milliom).

The acquisition, had it materialised, would have been a decent addition to the MCB group even though RBS’ current operations continue to suffer as a result of higher provisioning and bad debt write-offs as it has some 365,000 retail customers and about 100,000 credit card customers and niche client segments that has not been tapped by MCB Bank.

All is not lost given this slight setback. Maybank still has within itself sufficient capability and capacity to grow its operations organically given improving economic conditions domestically and regionally where it has strong presence, especially in Singapore and Indonesia.

The stock continues to trade below its long-term price/book average owing to continued scepticism on the growth prospects of Maybank given its widescale regional acquisitions over the last year or so.

We are positive on the longer-term prospects of Maybank as evidenced by growing signs of operational improvements. We reaffirm our buy call with an unchanged target price of RM8.10. — ECM Investment Research, Jan 4