Highlights

Maybank held an Investor Day with Community Financial Services (CFS) chaired by Group CFO (Rafique Marican) and Deputy President and Head, CFS (Datuk Lim Hong Tat) yesterday.

We came away feeling more confident about our BUY rating on the stocks as the transformation journey that started in 2008 has not only yielded positive results (as reflected in its 3QFY13 earnings performance and underlying trends) but has also set the motion for future growth.

With the success of CFS in Malaysia, the group will be reorganized in 2014 in order to replicate the success into its regional platform. This will enable the group to reap synergies across the region and propel its earnings dimension to another level.

With the budgetary reforms, budget measures on property and BNM regulatory tightening, the group expects slower loans growth from the retail segment. However, government’s focus on strengthening SMEs implies opportunity for this segment to pick up the slack. Overall, it is targeting to continue outpace industry loans growth but without sacrificing asset quality.

The success of CFS in further strengthening its deposit franchise, especially CASA (3QFY13 ratio is highest in industry and highest since Sep 11) has placed the group in an enviable position to defend NIM, face regulatory changes and liquidity management.

We also take comfort that despite the absence of lumpy provision, the relatively high provision number in 3QFY13 was in line with its conservative and proactive approach in provisioning.

Risks

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

Forecasts

Unchanged.

Rating

BUY

Positives – 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, recent deterioration in asset quality and exposure to Indonesia (fortunately it is only ~10% of profit).

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- 29 Nov 2013