Banking - Sleeping With the Frenemy

Date: 23/04/2019

Source  :  HLG
Stock  :  MAYBANK       Price Target  :  10.50      |      Price Call  :  HOLD
        Last Price  :  7.71      |      Upside/Downside  :  +2.79 (36.19%)
Source  :  HLG
Stock  :  RHBBANK       Price Target  :  6.60      |      Price Call  :  BUY
        Last Price  :  4.92      |      Upside/Downside  :  +1.68 (34.15%)
Source  :  HLG
Stock  :  BIMB       Price Target  :  5.00      |      Price Call  :  BUY
        Last Price  :  3.61      |      Upside/Downside  :  +1.39 (38.50%)

The advent of FinTech like p2p lending (now one of the hottest in the industry) serves as a wake-up call to archaic banks to reappraise their outdated business paradigms. The good news is that p2p lending in Malaysia remains at its infancy and not yet viewed as a major disrupter. Domestic banks are fully aware of the situation and have been ramping up their digital transformation efforts to avoid a Kodak Moment. However, catalysts to spur strong sector-wide growth are still missing and it is hard to be bullish on banks. Retain NEUTRAL since valuation is discounted at -1SD to its 5-year mean P/B. Our preferred pick is Maybank (TP: RM10.50). Other BUY calls are RHB (TP: RM6.60) and BIMB (TP: RM5.00).

What is p2p lending? It is an online marketplace that connects borrowers directly with investors, diminishing the intermediation role of a bank. This concept of financing is not a novelty given its origination back in 2005 at the U.K. However, it was only locally introduced in recent years following the grant of 6 operating licenses by the SC in 2016; we note that Malaysia is the first in ASEAN to regulate p2p lending activities. In 2018, SC has invited more applicants to register as p2p operators.

Objective of p2p lending. The primary aim is to provide an accessible alternative to SMEs to obtain financing and help spur economic growth; local SMEs play a key component in the country’s economy, contributing c.37% of Malaysia’s GDP and c.66% of total employment - the government has a goal to raise the former to 41% by 2020. Also, SMEs represented c.99% of all business establishments in the country. There is an estimated RM80b SME financing gap in Malaysia. Besides, it offers a new asset class, acting as another investment option for investors.

What lies ahead for Malaysian p2p lenders? P2P lending has turned into a global phenomenon and awareness has been rapidly on the rise; it is projected to expand at CAGR of 48% from 2016-24. The top 3 markets worldwide are the U.S., China, and the U.K. Although Malaysia has just tiptoed into the p2p lending space in 2017, we saw encouraging growth trends so far. Since inception, there has been 2,505 fruitful p2p financing campaigns with a total RM213m raised. In 2018 alone, capital raised rose 6-fold to RM180m.

Disrupting the way we bank? Currently, p2p lending in Malaysia is still at its infancy and is not yet viewed as a major disrupter. However, it would be a mistake by archaic banks to ignore their presence as gradual expansion may turn it into a potential threat. In Malaysia today, there are deepening ties between p2p operators and banks. If this fades in the future (with this symbiotic relationship turning into competition), we think strong SME lending franchises like Alliance and Public Bank will be the first to be impacted while BIMB should be the least affected given its dominant consumer related portfolio. Also, banks are ramping up efforts to enhance their broad technology platform to avoid falling behind the curve. We believe those who underspend on IT could face rising risk of brand erosion; BIMB and Public Bank are lagging behind peers on this front.

Maintain NEUTRAL. Banks are fully aware of the situation and have been upping the ante on their respective digital transformation efforts to avoid a Kodak Moment. Besides, we also note that quality of lending to SMEs remains robust despite the challenging business climate. However, catalysts to spur strong sector-wide growth remained missing. Hence, current sector valuation is fair as it is discounted at -1SD to its 5-year average P/B. Our preferred pick is Maybank (TP: RM10.50) given its good dividend yield and low foreign shareholding level vs larger domestic peers. Other BUY calls within our coverage universe are RHB (TP: RM6.60) and BIMB (TP: RM5.00).

Source: Hong Leong Investment Bank Research - 23 Apr 2019

Share this

Related Stocks

Chart Stock Name Last Change Volume 
MAYBANK 7.71 +0.09 (1.18%) 2,722,100 
RHBBANK 4.92 +0.05 (1.03%) 3,782,300 
BIMB 3.61 +0.17 (4.94%) 317,300 

  Be the first to like this.

I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
Stock Screener using Technical and Fundamental criteria
MQ Affiliate
Join the MQ Affiliate Program today to earn rewards

546  370  524  474 

Top 10 Active Counters
 ANZO 0.18+0.015 
 VIVOCOM 0.0350.00 
 SANICHI 0.09+0.005 
 EDUSPEC 0.02+0.005 
 PDZ 0.070.00 
 VIVOCOM-WE 0.02+0.01 
 IRIS 0.205+0.01 
 KNM 0.2150.00 
 AT 0.095-0.01 
 ASIAPLY 0.26+0.015 


1. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!
2. MQ Affiliate – A smarter way to earn more rewards MQ Trader Affiliate Program
3. MQ Affiliate – How to become an effective affiliate MQ Trader Affiliate Program
4. MQ Affiliate – Upgrading to Affiliate Partner MQ Trader Affiliate Program
Partners & Brokers