MAYBANK has laid out a five-year plan (2025) to drive sustainable ROE. Amongst its key strategies are to boost regional banking businesses, insurance segment, emphasise on digital capabilities as well as widening its investment banking and management-based propositions. The group also intends to develop a more prominent ESG (Environmental Social and Governance) identity. Buy with a TP of RM10.60 or a PBV of 1.37x derived from a higher applied ROE of 11% (which is below management’s 5-year target of 13-15%.

MAYBANK is our Top Pick for the banking sector for its most favourable risk-to reward with the highest dividend yield in the industry plus solid ROE prospects. MAYBANK hosted a briefing to share its 5-year plan and strategies to achieve planned targets by 2025. Fundamentally, these targets include: (i) sustainable ROEs of 13-15%; (ii) CIR (cost to income ratio) of less than 45%; and (iii) EPS of above 100.0 sen (accounting for future dividend reinvestments). Management also aspires to position the group as a regional ESG leader by driving sustainable financing up to RM50bn in 2025, and to be carbon neutral by 2030.

To achieve its ambitions, management has identified strategies to strengthen digital capabilities to allow for wider access to SMEs. With broader coverage, this will widen cost-efficient cross selling opportunities in its commercial users, enabled by its MAE platform. This could be a much needed driver to expand the group’s insurance and takaful clientele regionally with more personalised offerings.

The group aims to be more involved with ESG initiatives. On concerns that green financing could be less profitable, management opines that trade-offs are not necessarily meaningful and the net benefit could be greater. With this new approach, management sees new opportunities in investment banking and asset management as an ESG-centric alternative to the global market.

We believe that the results from these initiatives could only materialise in FY22 but could be at risk from a potential worsening of the pandemic. We view these targets to be achievable by 2025, given that we are expecting the group to organically improve its ROE in FY22E to 10.3% which are prepandemic levels.

Source: Rakuten Research - 12 Apr 2021