Investment Highlights

• We maintain our BUY call on Malayan Banking (Maybank) with an unchanged fair value (FV) of RM10.30/share pegging the stock to a P/BV of 1.3x, supported by an ROE of 11%. Our FV has taken into account a premium of 3.0% based on a 4-star ESG rating.

• We make no changes to our earnings estimate. The group held a briefing yesterday for updates its progress on ESG. It has designed and implemented its own sustainable product framework. This is to complement the development of green, social and sustainable products to meet its target of RM50bil sustainable financing by 2025.

• Maybank is progressively integrating ESG into its business decisions. This year, ESG screening questionnaires were introduced to its customers.

• To manage risk on sustainability, ESG risk management practices have been embedded into businesses at the sector, customer and transactional levels. High ESG risk sectors (palm oil, forest & logging, construction & real estate, power, oil & gas and mining), which contributed 56% of the financed carbon emissions, were subjected to risk acceptance criteria.

• Maybank aims to reduce 40% of its emissions in FY22. We gather that it has already lowered 41.1% of its scope 1 and 2 emissions against the 2019 baseline.

• The group managed to maintain its AA rating in the 2022 MSCI ESG rating assessment. This puts it among the top 36% of global banks rated by MSCI.

• On the target to mobilise RM50bil by 2025, Maybank has achieved RM24bil as at June 2022. This comprised non-retail (RM18.4bil) for certified green building financing and sustainability-linked real estate loans and retail (RM5.6bil) for affordable housing.

• In addition, Maybank is also on track to meet its commitment to improve the lives of 1mil households across ASEAN and achieve 1mil hours per annum on sustainability as well as deliver 1,000 significant outcomes under United Nations Sustainable Development Goals by 2025 (Exhibit 1).

• To drive thought leadership initiatives on ESG, the group has collaborated with regulatory bodies, non-governmental organisations (NGO) and its peers.

• Through various initiatives identified, Maybank is on track to achieve carbon neutrality by 2030.

• The group is taking action to reduce the emissions of its borrowers. Its loan exposure (funded) to 5 ESG vulnerable sectors (palm oil, oil & gas, coal, forestry & logging and mining) was 5% as at end-June 2022. Compared to the last ESG update in July 2021, the exposure to palm oil sector has declined slightly to 2.0% while that to the oil & gas sector decreased to 1.9%. Elsewhere, the percentage of loans to the coal, forestry/logging and mining (minerals) sectors stayed below 1%. As for non-funded (bond) exposure, it was kept under 1% of its total gross loans.

• Meanwhile, Maybank said 97% of its carbon emissions were contributed by home markets in Malaysia, Singapore and Indonesia. We understand that 70% of the total emissions came from <100 of its clients. The group is monitoring closely government policies and has actively engaged with those companies. It plans to obtain borrower-specific emissions data and provide transition support, including funding, to assist customers towards decarbonisation. Additionally, the group will be driving the setting of emission limits and climate targets (Exhibit 2).

• On the upcoming regulatory requirements on climate stress testing, banks will be required to assess the impact from climate change on business strategy and performance. BNM has issued a discussion paper for the 2024 climate risk stress testing (CRST) exercise and is presently soliciting the industry’s feedback. CRST will cover 60% the group’s exposure in home markets. The group intends to run a pilot test in 2022 to determine the impact. Over in Singapore, work is in progress on the stress testing based on 3 scenarios with the initial results reviewed internally in Aug 2022.

• The stock is trading at 1.2x FY23F P/BV, below the 5-year historical average of 1.3x. Maybank is one of our top picks for ESG and offers an attractive dividend yield of 7%.

Source: AmInvest Research - 2 Sept 2022