We maintain our OUTPERFORM call and GGM-derived PBV TP of RM9.25. MAYBANK looks to further strengthen its global banking business, which is a meaningful contributor to earnings. Enhancing its already comprehensive wholesale banking propositions and digital solutions could solidify its footprint to foreign markets (mainly ASEAN). There could also be a growing need for a reputable investment bank to uplift foreign mid-market companies, where MAYBANK is well positioned to penetrate.

MAYBANK hosted a briefing to highlight its global banking (GB) segment. GB operations are significant to the group, making up 37% of group operating income and 47% of pre-provisions profits in FY22, respectively. Presently, key markets outside Malaysia (62% of loan book) consist of Singapore (25%) and Indonesia (6%), with non ASEAN clients only accounting for 4% of its portfolio. Key takeaways are as follows:

• Recalibrating wholesale strategies. The group has identified opportunities in its wholesale business, focusing on well-tested sectors to accelerate penetration. It opines that better familiarity could enable more efficient cross selling of solutions, particularly with a growing need to decarbonise. Several identified sectors include real estate, plantation and oil & gas where the group has long-standing relationships which were previously enabled by their extensive funding capabilities.

• Digital solutioning to open borders. Part of the group’s IT investments include developing regional supply chains and cash management solutions. Cross-border propositions could provide greater conveniences to its clientele and encourage onboarding of new ones. A wider digital distribution network could also make investment solutions more assessible to clients which may have interest to grow their exposure in developing markets. Recall that the group is budgeting RM3.5m-RM4.5m in 3-5 years for digital reinforcement for its M25+ initiative.

• Tapping on a growing appetite to invest. Investment advisory services may be an underpenetrated area which deserves greater attention. Regionally, mid-market clients (ACE Market-classed) could see a growing demand for listing or fund raising which may require the expansion of the group’s investment banking presence. The group also aims to leverage its experience with local private equity clients to broaden its overseas portfolio where economic growth prospects are more vibrant. Having substantial wholesale market resources could paint MAYBANK as a preferred partner.

• Asset quality still paramount. Not compromising on long-term sustainability, the group will remain prudent with its asset quality management. Periodic bottom-up assessments are performed to ensure its corporate portfolios are well managed with evaluations to macro exposures being proactively considered. As of 1QFY23, MAYBANK’s gross impaired ratio of 1.50% is below domestic industry readings of 1.74% despite its considerable market share.

Forecast. Post-update, we maintain our FY23F/FY24F earnings. MAYBANK is slated to release is 2QCY23 earnings at end-Aug 2023.

Maintain OUTPERFORM and TP of RM9.25. Our TP is premised on a GGM-derived FY24F PBV of 1.24x (COE: 10.4%, TG: 3.5%, ROE: 12.0%). Although capital upside may be limited, we believe MAYBANK’s ability to provide the most sustainable returns via its consistent market leading dividend yields (7%-8%) warrants further accumulation. This is further secured by the group’s long-term vision to ensure that operational sustainability remains in check, thus affirming its leading position in the market.

Risks to our call include: (i) higher-than-expected margin squeeze, (ii) lower-than-expected loans growth, (iii) worse-than-expected deterioration in asset quality, (iv) slowdown in capital market activities, (v) unfavourable currency fluctuations, and (vi) changes to the OPR.

Source: Kenanga Research - 25 Jul 2023