BUY OR SELL-Maybank: May not yet be time to buy

By Faisal Aziz

KUALA LUMPUR, March 2 (Reuters) - Shares in Malaysia's biggest lender, Malayan Banking Bhd (MBBM.KL), fell 4 percent on Monday after it announced plans late last week for a $1.62 billion rights issue to shore up its balance sheet. [ID:nKLR436358]

The fund raising, though bigger than expected, was on the cards after Maybank spent about $3 billion last year to acquire Bank International Indonesia (BNII.JK) and other assets in Pakistan and Vietnam. The bank said investors have committed to take up almost 90 percent of the issue.

Monday's stock fall takes Maybank shares down to a 2009 low and near last October's trough, which was its lowest since April 1999.

NOT 'ATTRACTIVE'

The rights issue should strengthen Maybank's Tier-I capital to 11 percent from 8.1 percent now. The issue, to be made in April at a ratio of 9 shares for every 20 held, would be priced at a 30-40 percent discount to the theoretical ex-rights price.

Analysts, however, expect the issue to be priced at 2.70-2.75 ringgit a share, a steeper 46-47 percent discount to Maybank's Friday close, and forecast a 26-27 percent dilution to its financial year 2010 earnings per share.

"They did need to raise a lot of money and there were very few options available to them. But it's a very delicate time in the market to raise capital," said Abdul Jalil Rasheed, head of equities at Aberdeen Asset Management's (ADN.L) Malaysia unit.

"This, unfortunately, is not the best of times, and the stock doesn't look to be that attractive for the moment for long-term investors," he said.

PLATE FULL?

JP Morgan analyst Chris Oh downgraded Maybank to 'underweight' from 'neutral', and said there were "significant headwinds" ahead, making it unlikely the stock will outperform the benchmark index .KLSE, or its peers.

Management has "a full plateful in familiarising themselves with the group and digesting the new acquisitions in Indonesia, Vietnam and Pakistan", Oh said in a note.

"Compounding the issue is the ongoing economic crisis which will likely put revenues under pressure whilst asset quality is likely to deteriorate. Given the current difficult circumstances, we do not expect Maybank can surprise on the upside in the near future with its financial performance vis-a-vis its peers."

Aberdeen, which owned 2 percent of Maybank until last year, said it sold after Maybank went on an overseas buying spree.

"We felt the acquisitions were earnings-dilutive rather than accretive, there was lack of synergy between the domestic operations and acquired overseas businesses, and most importantly, the valuation was too steep," said Abdul Jalil.

"Whether Aberdeen will buy into Maybank again really depends on how management can prove us wrong. It's about results now and how they intend to integrate the enlarged entity into a credible Southeast Asian bank," he said.