KUALA LUMPUR: OSK Research has raised its target price for Malayan Banking Bhd (Maybank) from RM6.95 to RM7.05 (1.85 times FY10 PBV), backed by sustainable medium term ROEs of 13.5% and COE of 9.4%.

"While we recognize that there may be potential upside bias to earnings from higher than expected earnings from BII, we think that ROEs have to exceed 15% to justify a re-rating on the stock vs our current 12%-13% assumption," it said in a research note on Wednesday, Feb 10.

OSK Research said although there is a possibility of more pro-active capital management driving ROEs, it thinks that it is unlikely to be an FY10 story.

On the results, it said the annualised 1HFY10 results were 23% ahead of consensus and its full-year estimates with core earnings up 18.1% y-o-y.

The strong results were underpinned by a 77.8% y-o-y jump in non-interest income as a result of higher transactional banking volume and strong trading gains from the sale of AFS securities.

Another factor was lower than expected annualised credit cost of 65bps, mainly due to write-backs in
general provisions vs its forecast credit cost run rate of 70bps.

On a q-o-q comparison, operating earnings rose 20.1%, due mainly to a 41.7% q-o-q decline in loan loss provision from lower special provisions credit costs and general provisions write-backs.