Malayan Banking Bhd - Five-Year Road Map : M25

Date: 
2021-04-12
Firm: 
KENANGA
Stock: 
Price Target: 
10.60
Price Call: 
BUY
Last Price: 
8.63
Upside/Downside: 
+1.97 (22.83%)

MAYBANK has laid out a five-year plan (2025) to drive sustainable ROE, CIR, and EPS above 100.0 sen. 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 identity. Maintain OP with a higher TP of RM10.60 (from RM8.65) as we input higher ROE to our GGM- derived PBV.

M25 Investors Day. Last Friday, 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 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 RM50b in 2025, and to be carbon neutral by 2030.

Digitally sustainable measures. 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.

Cleaner global identity. The group aims to be more involved with ESG initiatives. During the briefing, management commits to the NDPE stance and will not finance new coal activities (be it with debt or equity fund raising) and will assist borrowers to transition to a sustainable renewable energy mix. 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.

Post briefing, we make no changes to our FY21E/FY22E earnings assumptions as management maintained its FY21E targets. 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.

That said, we came out feeling reassured by the aspirations presented by management. 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 pre-pandemic levels. Summarising our key takes, MAYBANK has identified effective channels to bolster its top-line prospects which are also cost effective that could translate to better profits, thereby meeting its 2025 goals. While this is caveated by variables in regional policies and regulations, the tone set by management plays a crucial role in steering the group towards the right direction.

Maintain OUTPERFORM with a higher TP of RM10.60 (from RM8.75). Our higher TP is mainly derived from a higher applied ROE of 11% (which is below management’s 5-year target of 13-15% given its long time horizon and execution risks involved). This puts our GGM-derived FY22E PBV to 1.37x (1.0SD above 5-year mean) from 1.18x. MAYBANK is our Top Pick for the banking sector for its most favourable risk-to- reward with the highest dividend yield in the industry paired by solid ROE prospects. Its market leading position in loans and deposits should prove beneficial in an economic recovery phase while its CASA-to-deposit ratio of c.40% would ease access to funds.

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) further slowdown in capital market activities, and (v) adverse currency fluctuations.

Source: Kenanga Research - 12 Apr 2021

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