Investment Highlights
Market-leading position and powerful branding. In terms of total asset size, MAYBANK is the largest bank in Malaysia and among the largest in SEA. As a result, it takes a “supermarket” approach to managing functions, straying away from niche functions and thus serving as an industry leader in most major lines of business. We don’t see MAYBANK losing this position anytime soon, given that its domestic loans are growing roughly in line with the industry average.
It remains the “go-to” bank for the average Malaysian consumer due to its extensive presence and reach. Given its market-leading position, management’s decisions can significantly affect its peers' strategies (primarily for loan and deposit rates). Its large balance sheet makes it the ideal candidate for large-scale, multi-billion-dollar projects.
Significant regional presence fuels growth. MAYBANK is a prominent player in other ASEAN countries, particularly Singapore and Indonesia. It is leveraging various transnational economic corridors and is aggressively acquiring market share within the space. While Singapore’s ROE is fairly close to Malaysia’s, Indonesia’s still has some way to go.
Its Singaporean segment focuses on wealth management (hence the high fee income contributions), boasting strong growth in its private, premier and privileged wealth customer base. Their wealth management segment’s success is due to a combination of “Islamic branding” and the ability to leverage the “ASEAN connection” – i.e. cornering the Singapore-Malaysian corridor. Opportunities for scalability exist: In Singapore, management vies to be the largest foreign bank.
In contrast, the Indonesian segment is not doing as well. Its ROE is still well below the Group average. Management intends to turn this around by 2025 – success in this front will alleviate the drag on overall ROE by a significant quantum. Measures include rebalancing their loan composition (e.g., reducing their exposure to low-yielding State-owned enterprise segment). We are wary of the difficulty in any turnaround plans, given (1) The competitive local environment and (2) Its lower exposure to the wealth management segment prevents it from relying on its “Islamic brand” to carry it through.
Majority ownership of insurance powerhouse Etiqa. MAYBANK owns 69% of Etiqa, while Ageas SA owns 31%. It operates in five countries: Malaysia, Singapore, the Philippines, Indonesia, and Cambodia. Locally, it is the largest general takaful/insurance company and among the largest life insurers/family takaful players. Insurance profits contribute to roughly 10-12% of Group PBT.
Etiqa’s position as a market leader in the Malaysian insurance scene makes it an attractive prospect, especially given that the competitive industry is ripe for further consolidation. Its sheer scale gives an edge: By maintaining a low management expense ratio, Etiqa can be slightly more generous with claims, which helps with customer retention. A close relationship with Malaysia’s largest bank ensures a steady pool of customers from multiple segments and channels. Management believes there is room for further optimisation concerning their bancassurance arrangement.
High dividends. MAYBANK’s dividend payout is among the highest in the industry, ranging from 70% to 90% (in certain years). This translates to dividend yields of a high 6-7%.
Valuation & Recommendation
We initiate coverage on MAYBANK with a BUY recommendation and a target price of RM11.28 based on an FY25F PBV of 1.36x GGM-PBV valuation. (GGM Assumptions: FY25F ROE of 10.6%, LTG of 3.0% & COE of 8.6%.)
We favour MAYBANK for its (i) Market leading position and strong franchise, (ii) Significant regional presence, (iii) Stake in regional insurance powerhouse Etiqa, (iv) High dividend yields.
Disclaimer
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.390206 | 4.425718 |
| EUR | 5.008717 | 5.015095 |
| CNY | 0.603029 | 0.603828 |
| HKD | 0.565660 | 0.569770 |
| SGD | 3.345779 | 3.370205 |