Investment Highlights

• The Group had a session on its digital initiatives

• Target to be “Digital Bank of Choice” is part of the Groups five key strategic objectives for Maybank 2020

• The initiative aims to enhance customers experience and to target more technically savvy customers, e.g. millennials

• In-house R&D team means faster to market on new developments and offerings

• Potential cost savings and revenue accretion but difficult to assess the impact as it is embedded in its financials

• No change in our forecasts for Maybank Group

• Maintain BUY with unchanged TP to RM10.30 based on PB multiple of 1.4x

Maybank Group Digital Day – key takeaways. We attended the Group’s digital day session with analysts and media yesterday. The session was intended to highlight the digital initiative that Group had launched and the efforts behind it, targeting to be “The Digital Bank of Choice”. Our key takeaways from the session were as follows:

• Digital initiative is nothing new for the Group, e.g. launched its online banking in 2000. Target to be “Digital Bank of Choice” is part of the Groups five key strategic objectives for Maybank 2020.

• The initiative aims to enhance customers experience and to target more technically savvy customers, e.g. millennials.

• In-house R&D team ensure the Group owns its ideas and intellectual property.

• Cost savings and potential earnings accretion due to better digital offering.

Digital offering not new but need to keep updating to stay ahead. We understand that the Group’s digital offering is not new as it was one of the leading proponents in online banking. Its online banking platform, Maybank2U, was launched in 2000, and from anecdotal evidence, it is one of the more preferred platforms. However, with the population of its home market becoming more technologically savvy, it needs to update its offering to stay ahead of its peers. This includes the 1QFY17 launch of its mobile app.

Future proofing by targeting millennials. We believe that the Group is future proofing its product offering with its digital initiatives. Our view is premised upon the focus it has on ensuring a strong online and mobile presence, which would appeal to millennials who are more technologically savvy. For background information, millennials are those born in 1981 to 1999, or would be between the ages of 18 to 36 today. We believe that this is strategically a wise move given that the millennial and the lower age groups are the majority in most of the Group’s home markets. For instance, in Malaysia (which contributed 68.7% to the Group’s 1HFY17 PBT), the age group between 20 to 39 years represented 33.0% of the population in 2016 (source: Department of Statistics, Malaysia). Meanwhile, 35.5% of the population were those below 20 years, which denotes the potential future active customers of the Group. In fact, assuming that the age group in which the highest likelihood to be an active user of online or mobile transaction (between 15 to 39 years old), its contribution to the population was 42.2%.

Digital transaction on the rise. We understand the need for the Group to maintain its dominant position in the digital offering. This is due to the fact that the number of cashless transaction, whether through internet banking, mobile wallet or debit cards are on the rise. According to Bank Negara Malaysia's statistics, from the period 2012- 2016, the value of Interbank GIRO transaction grew at a CAGR of 38.0% to RM767.6b. Therefore, we are not surprised by the management's expectation of transaction value via mobile for the Group to reach RM22b in 2017, or 95%yoy growth.

Potential cost savings and revenue accretion. The most obvious benefit from better digital offering will be cost savings from areas such as lower personnel cost due to lower headcount as most processes are automated, lower cost-to-serve and less maintenance spending on vendors. Also, we understand that better productivity can be expected from the personnel and more tailored customer focus. The digital initiatives are also expected to enhance revenue through more cross selling and bundling of products. With data analytics, the Group could tailor made financial solutions for its customers. This includes on-boarding of SMEs which are mainly online traders. Subsequently, it will also enhance deposit taking capabilities. Overall, we are optimistic of the potential of the Group's digital initiatives. Unfortunately, the cost and revenue associated from these initiatives are embedded into the Group's financial result. Hence, it is very difficult to truly measure the impact. Nevertheless, we have seen CI ratio on a downtrend recently for the Group where it posted 47.9% in 2QFY17 from 50.3% and 48.9% in 1QFY17 and 2QFY16 respectively, which might give an indication of the impact the digital initiatives.

Forecast

With the lack of details and pending the announcement of the Group's 3QFY17 result, we make no change to our forecasts for now.

Valuation and Recommendation

We opine that the Group digital initiatives have had a positive impact to its earnings and will continue to do so in the near future. We believe that targeting millennials make strategic sense given this age group's prevalence in digital usage. We are pleasantly surprised by the Group's direction to create an in house R&D team and we believe that this will ensure its digital offerings are robust. With a positive outlook on the Group, we maintain our BUY call with unchanged TP of RM10.30 as we peg FY18 BVPS to 1.4x.

Source: MIDF Research - 14 Nov 2017