By Stephanie Jacob
Although 2015 has been a tough year for the banking sector on the back of weak economic sentiment, Maybank managed to deliver a solid nine-month performance. Being a strong dividend play, is the banking group a good pick for investors looking for a solid, dependable counter?
Business model: Malayan Banking Bhd (Maybank) is the country’s largest bank in terms of asset size (RM640 billion as of end-2014). It is the third-largest bank by market capitalisation in Southeast Asia, with a market cap of RM81.2 billion as of Dec 1, 2015.
Currently, Maybank has the largest presence in Malaysia in terms of conventional and Islamic banking. Overall, it has 2,400 branches and offices in 20 countries of which 10 are in Asean. Other strategic markets of the bank include China, the UK and the US.
For financial year 2015, Maybank is aiming to hit the following key performance indicators (KPIs):
- Return on equity of between 12% and 13%.
- Group loan growth of between 8% and 9%.
- Group deposit growth of between 10% and 11%.
For the third quarter of financial year 2015 (3Q15), Maybank recorded a profit before tax of RM2.38 billion, a 7.1% increase year-on-year (y-o-y). This brought the group’s nine months of financial year 2015 (9M15) profit before tax to RM6.78 billion, a y-o-y increase of 1.4%.
Nett profit for the quarter under review rose 18.1% y-o-y to RM1.9 billion from the RM1.61 billion seen in the previous year’s corresponding quarter. While nett profit for 9M15 rose to RM5.18 million, up 8.3% over last year’s RM4.79 billion.
Shareholders and management: Maybank’s major shareholder is Amanahraya Trustees Bhd via Skim Amanah Saham Bumiputera, which owns a 37% stake in the banking group. The Employees Provident Fund is the second-largest substantial shareholder with around 15.8%. And this is followed by Permodalan Nasional Bhd, with slightly less than 5.7%.
Its group chief executive officer (CEO) and president is Abdul Farid Alias, who was appointed in August 2013. He was then also made CEO of Maybank’s local operations at the beginning of 2015. He has over 20 years of experience in investment banking and capital markets.
He has served with banks such as Aseambankers Malaysia Bhd, Schroders, Malaysia International Merchant Bankers Bhd, and JP Morgan. Prior to his stint at Maybank, he was a director of investments with the government investment arm Khazanah Nasional Bhd.
Share performance: According to Bloomberg, Maybank has been trading in a 52-week range of RM8.18 to RM9.60. The group has a market capitalisation of RM81.9 billion as of Dec 1, 2015.
It has a one-year return rate of -2.14% and therefore has outperformed the FBM KLCI which has a return rate of -4.86%. Meanwhile, competitors CIMB Group Holdings Bhd has a return rate of -18.05%, Public Bank Bhd has a return rate of 3.04% and RHB Capital Bhd has a return rate of -27.53%.
According to Reuters, the group has a beta coefficient of 0.68, and is therefore trading below the overall market volatility. A value of 1 reflects the average volatility of the stock market.
What analysts think: According to Reuters, 20 analysts follow Maybank and among them, the majority have “buy” or “outperform” calls, with seven and five analysts having these ratings on the group respectively. Eight others have a “neutral” call on Maybank, while three have an “underperform” rating on the stock.
Of the five research houses monitored by KINIBIZ, four have “buy” calls and one has an “outperform” call. Their target prices range between RM9.74 and RM10.27.
Earnings forecast:
StockStalk: As expected, the banking sector has been challenging in 2015, impacted by tightening liquidity and unexciting capital markets. Banking groups with exposure in Indonesia felt the continued impact of the poor economic environment there.
2015 started on a rough note for Malaysia’s largest bank as the market reacted badly to Maybank’s exposure to 1Malaysia Development Bhd (1MDB). The group’s share price fell sharply for several days after it emerged that 1MDB had missed a RM2 billion repayment deadline to local lenders. It is believed that Maybank holds about 60% of the loan.
Since then, there has been some recovery in its share price but it has not yet recovered to the RM9.14 level that it was trading at this time last year. Trading at RM8.45, the counter is still about 7.5% down y-o-y.
Nonetheless, Maybank has produced a good 9M15 performance and its results have come within analysts’ expectations. The group is expected to meet the KPIs that it has set for itself.
Given that analysts have a target price range of RM9.74 to RM10.27, there is upside to the stock at this price. Those looking at investing in solid banking stock might consider this price as offering a cheaper entry point, especially in view of Maybank’s solid performance this year despite the headwinds facing the sector.
Furthermore, perhaps the most attractive thing about investing in Maybank is that it is a strong dividend play. The group’s dividend policy dictates a 40% to 60% dividend payout ratio based on reported nett profit attributable to shareholders.
However, since FY10, the dividend payout ratio has in fact ranged between 68.9% and 79.9% due to Maybank’s dividend reinvestment plan (DRP). Maybank has said the average reinvestment rate of the eight DRPs has been 87.5%.
Maybank’s FY15 forecast dividend yield of 7.2% is also higher than all its listed peers, with AmBank Group the closest behind it with a forecast 5.7%.
The banking sector is expected to face continued headwinds going into 2016 and will reflect the general poor economic sentiment. However, investors looking for a solid dividend play or exposure to the financial services sector, might consider Maybank as an option.
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Important Note and Disclaimer: This article should not be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
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