Maybank (MAY MK, FV: RM9.60, Close: RM8.74)

Sweating Its Branches

Despite  Maybank’s  sizeable domestic branch network,  its  productivity level remains significantly below its key competitors’. Efforts to raise productivity at its branches are gradually bearing fruit, including recent key operating parameters under its Community Financial Service platform launched in 2010.  We  are optimistic of the group’s regional growth thrust and targets to regain its domestic consumer market leadership. We maintain our earnings assumptions and  FV of RM9.60 (2.06x FY12 P/BV, 14.7% ROE).  The stock  is currently trading at an undemanding 1.8x FY12 P/BV, with a compelling gross dividend yield of 7.2%  –the highest among domestic banking stocks. Maintain BUY.

Community Financial Service platform gains traction.  Maybank  only  launched its Community Financial Service Platform (CFS) in 2010 and yet the benefits arising from the rejuvenated organizational structure are already starting to filter through. This is reflected in the group’s recent 6MFY11 24% annualized SME/business deposit growth and a growth of more than 70% over the past 18 months.

More scope for growth. The CFS initiative essentially strives to transform its branches into a one-stop distribution network for both retail and SME/Business banking services. This will help drive incremental revenue growth and lower the cost-to-income ratio by maximizing shared resources across the branches. In the past, potential SME/Business customers’ contact points were previously  confined to  the group’s dedicated business centres in the major cities. This had hampered the group’s SME business growth in the past and allowed the likes of Public Bank to gain significant market share at Maybank’s expense,  despite  the latter’s  superior branch network. For example, shop house and non-residential property mortgages contribute to a relatively significant 22% of Public Bank’s total loan composition, but Maybank’s is a mere 1.8%.

Raising branch productivity. Although Maybank is  ranked third in terms of domestic loans per branch, the level of productivity is nearly 50% lower than that of  industry leader  Public Bank.  This coupled with its significantly larger branch network and Malaysia’s relatively young population  demographics indicate that there is significant room for  the group  to gain market share over the longer term, provided that management  can  successfully execute and  push  through its CFS initiative, including focusing its efforts on growing its high net worth retail customer segment.

Source: OSK188