News

Maybank appointed Datuk Abdul Farid Alias as CEO. He has more than 20 years’ experience in banking and was previously Deputy President & Head, Global Banking.

In his first statement, his focus is to expand the bank’s presence in ASEAN and targets 40% overseas profit contribution by 2015 vs. 30% now. This can only be achieved via acquisition. Although not necessary in Thailand (whereby it is seeking for acceptable terms from value and size perspective), it is an exciting market.

He will provide more insight into his plans during the 2QFY13 results announcement slated for 21 Aug.

Comments

It was widely expected that the new CEO would be an internal candidate and we welcome the appointment given that Datuk Farid is an “old hand” in the industry and has successfully guided the growth in Global Banking division.

The group’s interests in overseas expansion and Thailand (particularly commercial banking operations) are not new. It is already the largest banking group in Malaysia, thus, offshore expansion is a natural progression. In Thailand, despite being the largest broker, its commercial banking presence is relatively small. The intention was also clearly communicated to the investment community in several occasions previously, during Dato’ Seri Wahid tenure. Datuk Farid’s comment of “acceptable terms”, the experience learned from the acquisition of BII and the “failed” interest in Bank of Ayudhya (which was eventually sold to Mitsubishi UFJ for 2x book) provide comfort that any future acquisition is unlikely to create pricing controversial.

Its earnings growth momentum is gaining traction and we believe the new CEO is likely to enhance and expedite the expansion rather than derailing the trajectory, especially when he is an internal candidate. Moreover, given the positive feedback from investors, the Board is expected to continue with its higher dividend payout with high percentage in dividend reinvestment plan (DRP).

Risks

Unexpected jump in impaired loans, lower than expected loan growth and significant slowdown in capital market.

Forecasts

Unchanged.

Rating

BUY

Positives – Earnings growth from Indonesia, improving domestic operations and expanding regional footprint, new divisions to better address competition and customer centric and new IB outfit gaining traction. DRP provides downside protection while giving additional boost (from the discount pricing of DRP) to industry leading dividend yield.

Negatives – DRP will drag ROE and the recent deterioration in asset quality.

Valuation

Target price maintained at RM11.36 based on Gordon Growth with ROE of 15.0% and WACC of 9.7%.

Source: Hong Leong Investment Bank Research - 5 Aug 2013