Maybank’s share price fell again yesterday, losing 4.5% over the past 3 days to close at RM8.53. Investors who think that Maybank may be oversold and would like to take a leveraged view on the share price may consider the call warrants listed by Macquarie.

On Tuesday this week, Maybank organized its Investor Day. During the event, Maybank shared its plans to grow its insurance business, both domestically and regionally, to be the leading ASEAN insurer. Hear what Macquarie Equities Research (MER) has to say about Maybank’s plan in the report titled “Investor day: Decent Insurance business”…

 
Event

• Maybank organised an Investor Day to provide an update on the Insurance and Takaful business on 3 May 2016. This segment contributes around 6-7% to Maybank’s 2015 pre-tax earnings.

• Highlights and conclusion – (i) Maybank has a sensible business strategy to grow its insurance business in Malaysia and Takaful insurance, MER believes, (ii) planning an expansion into more ASEAN markets, and (iii) Target 2020 – To be the leading ASEAN insurer. Overall, Maybank has a decent Insurance and Takaful business in Malaysia. That said, MER notes insurance businesses are a negative for banks capital positions in a Basel III world.

 
‌Impact

• Sensible business strategy in Malaysia and Takaful insurance – Gross premiums for the insurance business – which is mainly derived from Malaysia – have grown at a 5-yr CAGR of ~4%. Contributions from Takaful insurance will continue to grow at a faster pace than Conventional insurance, in MER’s view. Takaful insurance contributed 46% (2014: 44%) of premiums and 41% (2014: 37%) of total Insurance pre-tax profits in 2015.

• Planning an expansion into more ASEAN markets – Maybank’s Insurance and Takaful business (Etiqa) is aiming for higher product capabilities in up to 6 markets outside of Malaysia. Besides Malaysia, Etiqa has operations in the Philippines (via recently acquired insurance operations) and in Singapore. Expansion into other the ASEAN markets could be via acquisitions of overseas insurance operations, MER thinks. Maybank targets an expansion into Indonesia in the near term, Thailand in the next 3 years, and possibly even Vietnam and Cambodia. MER is generally skeptical on overseas expansion, and see the risk that Maybank engages in expensive M&A.

• Target 2020 – To be the leading ASEAN insurer – Maybank aims to be (i) the most profitable Insurance and Takaful group in Malaysia, (ii) be top 3 Bancassurance player in Southeast Asia with exclusive partnership with 2 commercial banks, and (iii) most profitable Takaful company in the world. These are mainly qualitative targets with surprisingly no mention of embedded value target – a key matrix for insurance. Progress made by the insurance business may therefore be difficult to track.

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Action and recommendation

• MER have an Outperform rating on Maybank – target price RM9.00.

• The update on Insurance and Takaful was interesting to MER. However, the insurance business is unlikely to be a key earnings driver for Maybank, in MER’s view.

• Asset quality trends for Maybank could be less bad relative to the sector and capital ratios even after our Basel IV stress test look adequate. However, the operating outlook for Maybank remains unfavourable, in MER’s view.

Source: Macquarie Research - 6 May 2016