• Under Maybank’s recently unveiled 5-year strategy, termed as ‘M25’, management has set an aspirational ROE of between 13-15%, on top of its ‘business-as-usual’ ROE target of 11.5%
• The M25 strategic initiatives will see business decisions anchor on ESG principles, and management has made a financing commitment towards ‘NDPE’ back in January 2020: no deforestation, no new peat and no exploitation
• Reiterate BUY on Maybank, with PT at RM9.40 (based on 1.24x P/BV target on CY21E BVPS). Downside risks: higher NPLs and rising impaired loan provisions, weaker loan growth

Leveraging on the Sustainability Agenda in the Next 5 Years

Maybank’s five-year strategic plan (2021-25) under M25, will be based on three ‘Group Strategic Priorities’ i.e., ‘Pervasively Digital’, ‘New Value Drivers’ and ‘Sustainability’. Based on our observation, the sustainability agenda, i.e., ESG factors have been integrated into the group’s initiatives. Maybank will continue to enhance its digital initiatives and ecosystems in order to deliver more value to its stakeholders within its three key business pillars (GCFS, GGB, Group insurance & Takaful). It aims to be a regional ESG leader as it commits RM50bn in sustainable finance by 2025 while committing to a ‘NDPE’ stance, i.e., No Deforestation, no new Peat and no Exploitation (which is applicable to all relevant sectors).

Are KPI Targets Realistic? Aspirational ROE at Between 13-15% by 2025

Here comes the question on whether the aspirational targets set are achievable by 2025, i.e. an aspirational ROE of between 13-15% by 2025, which would have to be anchored by an EPS of >100 sen, cost-to-income ratio (CIR) of <45% and dividend payout ratio of 40-60% (on a net cash basis). Though these remains long-term targets beyond our valuation horizon, we foresee an overall lower credit risk profile in its funding activities, cost-optimization, new fee income avenues and expansion in markets under the ‘New Profit Drivers’ to boost ROE.

Maintain BUY, Price Target Unchanged at RM9.40

We reiterate our BUY rating on Maybank, with our 12-month TP unchanged at RM9.40 (based on a 1.24x P/BV on CY21E BVPS) underpinned by a CY21E ROE of 7.9% and cost of equity of 7.0%. For 2021E, we expect Maybank’s earnings to recover by ~4% yoy given lower NCC (at 80bps vs. 88bps in 2020) and absence of mod-loss. Our underlying assumptions for 2021E/22E/23E: loan growth of 2% yoy, NIM at 2.1%-2.11%, CIR at 47- 49%, and NCC at 79bps/50bps/49bps. Downside risks: interest rate cuts; higher NPL rates from the targeted assistance program.

Source: Affin Hwang Research - 14 Apr 2021