Maybank is staging a new leg of growth over the next 5 years. In our view, their strategies are compelling and they have a lot of levers to pull in order to realize their 2025 financial aspirations. Hence, we believe Maybank can replicate M20’s successes. All in all, no change to our FY21-22 profit forecasts and introduced FY23 estimates. We still like Maybank for its regional exposure and leadership position. Also, it offers superior dividend yield. Besides, we believe the stock’s risk-reward is skewed to the upside premised on being: (i) a prime candidate for rotational recovery play among FBMKLCI constituents and (ii) less susceptible to foreign equity sell-off. Retain BUY with a GGM-TP of RM9.20, based on 1.22x FY21 P/B.

Last Friday, Maybank unveiled its new 5-year strategic plan called M25, which aims to sustain ROE, further boost customer experience, and be a regional ESG leader; this supersedes the ‘Maybank 2020’ (M20) blueprint that helped to lay the foundation from 2016-20. Hence, we examine their strategies going forward and whether its financial aspirations for 2025 are attainable.

Met M20 strategic objectives. To recap, M20 focused on strengthening its position in ASEAN across all key businesses and become a digital bank of choice. After looking through its string of achievements (on higher market share, ranking, growth, adoption rate & NPS), in our opinion, Maybank was successful in meeting its 2020 goals that it initially set out to accomplish 5 years ago. Without Covid-19 pandemic, net operating income, PPOP and earnings would have grown by a 5-year CAGR of 4-5% (2015-20).

2025 financial aspirations. M25’s primary objective is to pursue growth sustainably, and bettering customer experience via digital and hybrid services. Besides, Maybank looks to leverage on the foundation built by M20 and also, maintain cost discipline. To benchmark, it has outlined 4 desired long-term financial outcomes: (i) raise BAU ROE to ~11.5% with an aspirational target of 13-15% (2020: 8.1%), (ii) keep CIR to below 45% (2020: 45.4%), (iii) EPS more than 100sen (2020: 58sen), and (iv) 40-60% DPR on a net cash basis (2020: 34%).

Shoot for the moon, land among the stars. Overall, we like the many strategies put forth by Maybank over the next 5-years. We find it has a lot of levers to pull in order to realize its 2025 BAU ROE. From our calculations, it does not appear to be stretched: total income only has to grow by a 5-year CAGR of 2.2% (lower vs the 3.4% revenue CAGR booked from 2015-20) while opex expansion must be contained at a softer clip of 1.3% (vs 1.8% previously). The projected CIR is c.43% but note, we also assumed NCC normalization to 35bp from 88bp in 2020. Besides, the 13-15% aspirational ROE target is not far-fetched, where we estimate top-line just need to increase by a 5-year CAGR of 3.7% with CIR dipping to c.40%; even if Maybank’s cost base inflation rises faster than expected, we reckon it has room for capital management, considering high CET1 ratio of 15.3%, which can also help to lift ROE further.

Forecast. No changes to FY21-22 earnings forecasts. Introduced FY23 estimates.

Retain BUY and GGM-TP of RM9.20, based on 1.22x FY21 P/B with assumptions of 8.4% ROE, 7.4% COE, and 3.0% LTG. This is broadly in line with its 5-year mean of 1.20x but ahead of the sector’s 0.92x. The premium to peers is fair given its regional exposure and leadership position. Also, it offers superior dividend yield of c.7% (3ppt higher than peers). In our opinion, the stock’s risk-reward profile is still skewed to the upside premised on it being: (i) a prime candidate for rotational recovery play among FBMKLCI constituents and (ii) less susceptible to foreign equity sell-off.

Source: Hong Leong Investment Bank Research - 12 Apr 2021