• We maintain our BUY call on Maybank with unchanged FV of RM10.70/share supported by FY19 ROE of 11.2%, leading to a P/BV of 1.5x. Our BUY call is premised on attractive valuation after the recent heavy selldown of the stock, diversified earnings and dividend yield of more than 5% which is higher than its peers.

• The group organized an Investor Day yesterday to discuss the achievements as well as the 2018 outlook and priorities of Maybank Group Islamic Banking (MGIB).

• The group aims to become the global leader in Islamic finance by 2020 by creating value for their clients and communities that they serve.

• MGIB as at the end of FY17 contributed 28.8%, 31.0% and 26.6% to Maybank group’s assets, funding and PBT, respectively. MGIB’s accounted for 36.0%, 49.0% and 37.0% of Maybank (MBB Domestic) assets, funding and PBT respectively in FY17. In 1QFY18, Maybank Islamic loans comprised of 57.7% of the group’s total loans in Malaysia. By 2020, MGIB targets to contribute 50.0%, 50.0% and 40.0% to the group’s assets, funding and PBT respectively. The adoption of the “Islamic First” strategy saw MGIB’s assets gradually rising, reaching a high of RM202.5bil in FY17. Meanwhile, total financing and PBT were the highest at RM163.6bil and RM2.27bil respectively. It has a strong market share in Malaysia of 33.6% and 31.2% in 1QFY18 respectively for financing and funding. Owing to the strong market share domestically, management hinted that MGIB’s growth will be organically rather than to pursue the creation of a mega Islamic bank through M&As.

• To differentiate on its offerings to deliver innovative products and services, MGIB has introduced an Islamic World Mastercard, Ikhwan-I, in May 2018. Through this card, 0.2% of the spending will be donated to charity which will eventually be channelled to waqaf and zakat funds. Also, to provide a rent-to-own ownership, a house ownership scheme, Houzkey, has been introduced. We understand that funds from investment accounts could be channelled for the acquisition of assets under this scheme. The bank will be the owner of the property. Customers renting it will subsequently be given an option to purchase the property from the bank. We understand that the purchase price of the property will be locked in and rental payments could be fixed for up 5 years.

• The domestic Islamic banking business is operated under a leverage model. Meanwhile, in Indonesia, it is operated under an Islamic banking window. The leverage model for MBB Domestic, as we understand it, has advantages in terms of operating cost compared to a full stand-alone operation. This can be observed by MGIB’s 1QFY18 lower CI ratio of 34.3% compared to the group’s 47.6%. Also, the leverage model provides greater clarity for strategic directions taking cue from the group’s overall business strategy. On the flipside, MGIB’s net profit margin is lower at 1.88% in 1QFY18 vs. group’s NIM of 2.39%. This has been contributed by the higher funding cost for Islamic banking compared to conventional banking. MGIB’s cost of funding was higher due to a lower CASA ratio of 26.0% (Maybank group CASA ratio: 35.3%).

Source: AmInvest Research - 3 Jul 2018