• Keep BUY and MYR10.60 TP, 22% upside and c.7% yield. In an Investors Day session yesterday, Malayan Banking unveiled M25+, a refinement of its “Five-Year Strategy: M25” rolled out in May 2021. In our view, two key highlights from M25+ are the increased focus on the back-end integration of its banking infrastructure and strengthening of Maybank’s position beyond Malaysia. Planned investments of MYR3.5-4.5bn over the next 3-5 years would see target ROE at a lower 11-12% vs 13-15% under M25.

• Refined corporate strategy – M25+. Heightened global uncertainty has led Maybank’s new Group President and Chief Executive Officer Dato’ Khairussaleh Ramli and his management team to relook strategies to drive sustainable growth and returns. Having identified five key macro trends that require response – global sustainability, new digital economies, war for talent, changing customer preferences, and agility needed in a volatile market – management refined the group’s Five-Year Strategy: M25 rolled out in May 2021. Named M25+, the original five strategic thrusts have been refined for greater differentiation (Figure 1) and sharpened focus on business segments and products (Figure 2). With M25+, which will be enabled by the agile way of working, management expects to accelerate medium term-growth.

• Investing MYR3.5-4.5bn to be future ready. To develop new capabilities for long term growth, management plans to invest MYR3.5-4.5bn over the next 3-5 years. Of this, 53% is earmarked for investments in technology for business, 24% for technologic enhancements in banking infrastructure, and 23% for people and other resources (Figure 3). The planned IT investment would raise Maybank’s IT spend to >5% of revenue in 2025, which would be on par with the average of top regional banks. This is expected to push CIR to a peak of c.48% in 2023 before falling back to c.45% in 2025.

• ROE target lowered. Management aims to progressively roll out its strategic programmes over the next 12 months, with topline growth filtering through in 2024, and achieving steady state realisation by 2025. With full realisation of M25+, Maybank expects ROE to hit 11-12% in FY25 vs 9.8% in FY21. This is underpinned by topline growth of c.7% CAGR for FY21-25, fee income at 32% of total income, and loan growth of 7% pa. The ROE target, which is lower than the 13-15% under M25, takes into account the heightened macro challenges and expected increase in CIR for FY23-24.

• Downside risks to our forecasts. We see downside risk to our FY23F- 24F earnings, given our current CIR assumption of c.45% for the two years. Assuming all else is constant, a CIR of 48% would lower our FY23F-24F earnings by c.7-8% and trim ROEs to c.11%. Offsets would come from a sustained decline in credit costs and stronger topline growth. We will review our forecasts following the release of 3Q22 results on 23 Nov. Our MYR10.60 TP is based on an intrinsic value of MYR10.22 with an ESG premium of 4% applied, based on our in-house ESG methodology.

Source: RHB Research - 28 Oct 2022