Malayan Banking - Revitalised community segment on stronger footing

We are maintaining our BUY rating on Malayan Banking Bhd (Maybank), with unchanged fair value of RM9.80/share. This is based on an ROE for FY12F of 14.7%, which translates into a fair P/BV of 2.1x.  

Maybank held an Investor Day Briefing for its Community Financial Services (CFS) division yesterday. The CFS division is the new house for essentially the retail and SME segment which services the Group’s Consumer, SME and commercial/business banking clients. 

The transformation process which was started four years ago in 2008, led the CFS to move to a more customer-centric driven model. Under this new model, the business banking and small-medium enterprise (SME) segments were now included in the CFS division from 2010. In 2011. The customer models in both segments were redefined to enhance the quality and relevance of its products and service delivery.  

Its main accomplishments to-date: (a) With the branches now required to service the business segments as well, Maybank has seen a surge in growth of its business banking deposits by 70% in the last 18 months; (2) significant increase in affluent customer base, by 14.6%. In addition, total financial assets related to this segment has expanded by a robust 24.2%, over the last 18 months; (3) reduction in gross impaired loans ratio in this segment to 3.5% from 4.8%, over the last 18 months. This was attributed to proactive early recovery efforts and restructurings, under its newly rolled out Nationwide Early Care Centre. 

It expects 2012 to be tougher but is still generally positive. Growth in the business banking and SME divisions is expected to be driven partly by government’s Economic Transformation Programme (ETP). For the retail segment, Maybank remains positive on the mass affluent market and sees good prospects for the auto, mortgage and credit card segments. Whilst overall loans approvals and applications had seen moderation similar to the industry’s in January 2012, the February 2012’s trend is now back to normal.

We remain positive on Maybank following this briefing. We believe the new house for its retail and SME segments is now on a much stronger footing following the transformation process three years ago. We expect Maybank’s key rerating catalysts from here to be:- (a) improvement in asset quality, which will provide comfort that an up-cycle in loan loss provisioning will likely be short-lived; (b) better-than-expected ROE; (c) betterthan-expected dividend.  

Source: AmeSecurities