2. DISCLAIMER
I am NOT an investment advisor nor a financial advisor, and no information provided
here is to be interpreted as a suggestion to buy or sell securities.
Stock analysis in this presentation may not neutral because I have incorporated my
risk appetite and principles in the analysis.
All figures in MYR and in '000s, except per share data
2
5. SCOPE
• Figures and ratios are based on the figures reported in Annual Report or the latest
Q4 Quarterly Report (QR)
• Unless there is a need, this analysis will not include financial figures reported in Q1,
Q2 and Q3
• I will provide QR result highlights in my blog
• Valuation is not covered in this analysis
• I will provide valuation in my blog.
6. CHANGES
• 12 Nov 2015 – First write up of MAYBANK in PowerPoint format
7. REFERENCES
• Bank Industry (KLSE) - Peer Comparison
• BANKING – OCT 2015 BNM STATISTICS
• Malaysia Banking – 3 Dec 2015
8. BUSINESS PROFILE
• The Bank is principally engaged in all aspects of commercial banking and related
financial services
• The Maybank Group has a global network of over 2,400 offices in 20 countries
including in all 10 ASEAN countries
• The Group operates from its three key “home markets” of Malaysia, Singapore and
Indonesia as well as across the key Asian countries and global financial centres
• It offers a range of financial services includes commercial banking, investment banking,
insurance and takaful, asset management, Islamic banking, offshore banking, stock
broking, venture capital financing and internet banking.
9. BUSINESS PROFILE (CONT.)
Key Overseas
Subsidiaries
PT Bank
Internasional
Indonesia Tbk
Maybank Philippines
Incorporated
Maybank
(Cambodia) Plc
Maybank (PNG) Ltd
Maybank
International (L) Ltd
Major Operating
Subsidiaries
Maybank Islamic
Berhad
Maybank Investment
Bank Berhad
Maybank Kim Eng
Holdings Limited
Etiqa Insurance
Berhad
10. OWNERSHIP SUMMARY
INSTITUTIONS
70%
PUBLIC AND OTHER
24%
STATE OWNED SHARES
4%
CORPORATIONS (PRIVATE)
2% INDIVIDUALS/INSIDERS
0%
CORPORATIONS (PUBLIC)
0.01%
Position Date: 19 Nov 2015
11. TOP 5 SHAREHOLDERS
PERMODALAN NASIONAL
BERHAD
62%
EMPLOYEES PROVIDENT
FUND OF MALAYSIA
27%
GOVERNMENT OF MALAYSIA
4%
KUMPULAN WANG
PERSARAAN
4%
LEMBAGA KEMAJUAN TANAH
PERSEKUTUAN
3%
Position Date: 19 Nov 2015
12. OWNERSHIP ANALYSIS
• Permodalan Nasional Berhad is a shareholder with significant influence on the Bank,
with direct shareholding of 5.37% and indirect shareholding of 38.46% via Amanah
Raya Trustee Berhad
• The Employees Provident Fund is the second-largest substantial shareholder with
around 27%.
13. ECONOMIC MOATS
• Cost Advantage
• MAYBANK enjoys high net profit margin and FCF/Sales
• On the other hand, the banking sector is facing Net Interest Margin (NIM) compression
• NIM compression will persist in the next few years
14. ECONOMIC MOATS (CONT.)
• Switching Costs
• The first mover in the online banking in Malaysian financial sector
• Lead to develop valuable advantage to attract large number of subscribers
• Maybank's wide networks, both local and also global reach
• One stop financial centre
• Another important is inertia. Many people don't switch banks, even if they feel that
they're being nickeled and dimed by their current bank.
• The inertia is weaker nowadays. Consumers can have few bank accounts in different bank, and
change their preferred bank easily. Attractive refinancing offers provided by other banks.
15. ECONOMIC MOATS (CONT.)
• Network Effect
• Strong brand and leadership position in the domestic market
• Expected to continue with ETP investment momentum
• Largest network domestically and emerging regional leader with presence in 10 ASEAN
countries
• MAYBANK2U, with market share of 36.6% (>50% ahead of the next competitor) in terms
of online banking, and an annualised growth of 22.9% of online users
• Avg. online transaction volume: 88mil per month (55% of total retail transactions via ATM and
branches)
• About 10% of these online transactions are now being monetized.
16. ECONOMIC MOATS (CONT.)
• Intangible Assets
• The abundant of experience and strong workforce
• Strong financial resources coupled with GLC status
• Enjoys some advantage in term of government deposits and other credit portfolios
• MAYBANK2U, with market share of 36.6% (>50% ahead of the next competitor) in terms
of online banking, and an annualised growth of 22.9% of online users
• Widely known and well recognized by its unique brand name and a tiger head logo.
17. ECONOMIC MOATS (CONT.)
• Efficient Scale
• Have characteristics of rational oligopolies
• Can decide to lower its prices, change its output, expand into a new market, offer new services,
or advertise. This will have powerful and consequential effects on the profitability of its
competitors
• Strong commitment of the Islamic banking services
• Strong financial resources coupled with GLC status
• Tap deposits from government and government related agencies
19. PROFITABILITY (CONT.)
• From FY05 to FY14, CAGR of pre-provision operating income (PPOI) is 8.1%
• In FY09, there was a dip (-6.7%) in PPOI (FY08: 5,315mln; FY09: 4,960mln)
• Subprime
• Huge allowances for losses on loan,
advances and financing
• Huge impairment loss in goodwill
• Acquisition of subsidiaries in Indonesia
• In FY14, PPOI declined -2% (FY13: 9,610mln; FY14: 9,419mln)
• Increase in Personnel Costs and Administration & General Costs
• Lower provision in credit loss.
21. PROFITABILITY (CONT.)
• “Net Income % Tangible Assets” of MAYBANK ranged in 1.0 to 1.18
• Using Moody’s rating system as benchmark, MAYBANK’s profitability is rated as M+
(Medium+) for FY14.
28. CAPITAL ADEQUACY (CONT.)
• PBBANK increased regulatory capital, from 11.1% (FY10) to 13.5% (FY14). This is way
above Bank Negara requirement
• “Tangible Common Equity % RWA” increased from 9.9% (FY10) to 13.7% (FY14).
Again, by Moody’s benchmark, this is rated as S- (Strong-).
29. FUNDING STRUCTURE & LIQUID
RESOURCES
11.0%
12.2%
11.2%
12.7%
14.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
Market funds % Tangible Banking Assets
As of FY14, “market funds/tangible banking assets” of
MAYBANK is 14.5%, which is rated as S (Strong).
30. FUNDING STRUCTURE & LIQUID
RESOURCES (CONT.)
18.4%
17.4%
21.3% 21.4%
20.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
Liquid Banking Assets % Tangible Banking Assets
Since FY11, MAYBANK has been working on improving
liquid banking assets – 17.4% (FY11) to 20.7% (FY14). We
can rate this as M (Medium).
31. FUNDING STRUCTURE & LIQUID
RESOURCES (CONT.)
86.8%
90.1%
89.8% 89.9%
91.8%
84.0%
85.0%
86.0%
87.0%
88.0%
89.0%
90.0%
91.0%
92.0%
93.0%
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
Loan-to-deposit ratio
The following chart shows loan-to-deposit for PBBANK,
and the range is between 89% to 92%. We should
compare this with other banks.
33. GROWTH DRIVERS
• 9 Feb 2015 - The volatility in the market to be positive for the Group’s FX income
• 9 Feb 2015 - Should US interest rate rise due to Fed tightening, any increase in MGS
yield will be positive on the Group’s net income from insurance and takaful business
as this will lower its contract liabilities
• 9 Mar 2015 - Maybank Has ‘Strong Pipeline’ of Malaysia, Thailand Equity Deals
• 3 Aug 2015 - Maybank opens first branch in Myanmar.
34. GROWTH DRIVERS (CONT.)
• Expansion & growth in Thailand
• Regionalisation of Islamic banking
• Development of regional financial solutions
• The Asean Economic Community and growth in Intra-Asean trade.
35. ISSUES/RISKS/CHALLENGES
• 7 Jan 2015 - the market was concerned about Maybank’s exposure to 1MDB as the
local press reported that 1MDB failed to pay a RM2 billion loan due on 31 Dec 14
• Maybank’s loan exposure to 1MDB could amount to RM5.5 billion.
• a 10% provisioning for this would trim Maybank’s FY15 net profit by 5.6%
• The risks would be reduced by the government’s guarantee and 1MDB’s listing plans
• 9 Feb 2015 - Direct loan exposure to the Oil & Gas sector represents 2.6% of loan
book. Oil & Gas exposure represents circa 2.6% of the Group’s loan book
• This is lower comparatively to some of its peers such as Ambank, CIMB and Affin which
have exposures of 3.5%, 3.5% and 4.0% to total loan book respectively.
36. ISSUES/RISKS/CHALLENGES (CONT.)
• MAYBANK's cost-to-income is more than 45% and expected to continue
approaching 50%
• Among all Malaysia banks, MAYBANK's loan-to-deposit ratio is the third highest.
Hence, it may not able to gear up and push its loan-to-deposit ratio a little further
to ensure NIM remains sustainable
• Competition for loans and deposits has not abated, and NIM compression will likely
continue into 2016
• DRP will drag ROE
• Increase in provisioning for loan impairments for some corporate loan customers
arise due to the difficult market conditions in Indonesia.
37. ISSUES/RISKS/CHALLENGES (CONT.)
• Tighter lending rules and slower loan growth - weaker-than-expected NIMs
• Slower than expected ETP projects rollouts
• Keener competitions and hence further margin squeeze
• Sharp turn in NPLs hence higher credit charge
• Potential asset quality pressure arising from changing macroeconomic environment
• Competitive landscape to put further pressure on loan pricing & funding costs
• Deterioration in asset quality
• Adverse foreign exchange movements
38. UNUSUAL ITEMS
• 23 Dec 2014 - Maybank has disposed of its entire ownership of Philippines-based
indirect subsidiary ATR Kim Eng Land Inc (ATRKE Land), which has total assets worth
RM83.7 million.
• 18 May 2015 - Malayan Banking Bhd (Maybank) is exiting from Papua New Guinea
(PNG) by hiving off its entire equity stake in Maybank (PNG) Ltd and Mayban
Property (PNG) Ltd (MPPL) to Kina Ventures for RM418 million.
39. SHAREHOLDER RETURN
Time Frame Date Bought at Original
Value
Dividend
Received
Unrealized
Gain/Loss
Current
Return
CAGR %
3-Y 22 Oct
2012
14.836 14,836 1,600 3,804 20,240 10.9%
5-Y 22 Oct
2010
12.727 12,727 2,619 5,913 21,259 10.8%
10-Y 21 Oct
2005
6.806 6,806 5,807.83 12,648.52 25,262.35 14%
Assumptions:
1. Commission paid is ignored in this simulation
2. The current price is 18.64 (as of the time of writing)
3. Unit purchased is 1,000.
40. SHAREHOLDER RETURN (CONT.)
67%
46% 46% 45% 44%
0%
10%
20%
30%
40%
50%
60%
70%
0.0000
0.1000
0.2000
0.3000
0.4000
0.5000
0.6000
0.7000
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
CAGR -1.4%
To maintain capital adequacy, in general, banks unlikely
to maintain high dividend payout.
41. GOING FORWARD
• For FY15, management has guided
• ROE of between 12% and 13%
• Group loan growth of 8% - 9% (Malaysia: 8-9%, Singapore: 8-9% and Indonesia: 13-15%)
• Group deposit growth of 10% - 11%
• MAYBANK forecasted that Malaysian loan growth of 6% to 7% in 2015
• 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.
42. GOING FORWARD
• The group’s dividend policy dictates a 40% to 60% dividend payout ratio based on
reported nett profit attributable to shareholders
• Due to its strong dividend yield, healthy liquidity and strong capital position, I will
continue to hold MAYBANK, and accumulate MAYBANK without increasing my
average price too much.
Editor's Notes
To measure a bank’s efficiency and its ability to generate incremental profits with added revenue, I will use “Cost to Income” which is available in every bank’s financial report. The lower it is, the more profitable the bank will be.
A bank’s asset risk is fundamental to its creditworthiness because its high leverage implies that a small deterioration in the value of its assets has a large effect on solvency. These risks are captured, to a considerable degree, by a single financial ratio, problem loans/gross loans (which we term the problem loan ratio). As loan quality deteriorates, the problem loan ratio rises, signaling potential problems, credit losses and consequent pressure on solvency that disadvantages bondholders by reducing the earnings and equity capital buffers that protect them.
A bank’s funding structure has a strong bearing on its potential need for assistance because some sources of funds are less reliable than others. This implies that a bank making significant use of an unreliable funding source – perhaps short-term in nature, from particularly risk-sensitive counterparties – is more likely to suffer periodic difficulties in refinancing its debt. All other variables being equal, this puts it at greater risk of needing support. The primary ratio is “market funds/tangible banking assets”. This ratio expresses the proportion of the balance sheet that credit-sensitive investors and counterparties fund; as such, it measures liability-side volatility and the resultant liquidity risk.
An assessment of the liability-side structure of a bank has to be seen in the context of its asset side. A bank can reasonably borrow from credit-sensitive investors if it has corresponding assets in the form of high-quality liquid instruments that it can sell or repo for cash in response to its funding counterparts’ changing behaviour. The primary ratio is “liquid assets / tangible banking assets”. This provides an offset to the “market funding / tangible banking assets” ratio above. Moody’s study shows that banks with relatively low levels of liquid assets had a higher tendency to require support.
To measure whether a bank still has buffer to increase loans, the primary ratio is Loan-to-deposit ratio. This ratio is particularly useful to assess potential growth of a bank by measuring conversion rate of deposits to loans. If the ratio is too high, it means that banks might not have enough liquidity to cover any unforeseen fund requirements. If the ratio is too low, banks may not be earning as much as they could be. 75% to 90% can be considered as healthy range. Besides, we should also compare ratio of a bank with its peer.
Market Risk Appetite aims at capturing the sensitivity of both the trading and non-trading books to major changes in key financial variables (including interest rates, FX, equity prices, credit spreads). In assessing a bank’s market risk appetite, our starting premise is that the fundamental relationship between risk and expected return indicates that the greater the risk, the higher the expected return. As expected return increases, the volatility of returns, and so the size of potential unexpected losses, increases. Conversely, as expected return decreases, the volatility of returns and so the size of potential unexpected losses decreases.
