MAYBANK (1155) - 13 things you need to know about Maybank before you invest - Ian Tai

Malayan Banking Berhad (Maybank) (Bursa: 1155) is Malaysia’s largest and Southeast Asia’s fourth largest banking group. As of 3 August 2017, Maybank is worth RM98 billion in market capitalization. It is the closest stock in Malaysia to exceed the RM100 billion mark presently.
In this article, I’ll bring a detailed account of Maybank’s tremendous success and achievements thus far and its outlook toward the near future. Therefore, here are the 10 things you need to know about Maybank before you invest.

Track record

1. Maybank has achieved a CAGR of 13.81% in loans, advances and financing assets over the last 10 years. It has increased from RM131.10 billion in December 2006 to RM477.77 billion in December 2016. This is due to growth in lending in major segments such as working capital, purchase of vehicles, and purchase of residential and non-residential properties during the 10-year period.

Source: Maybank Annual & Quarterly Reports
2. Maybank has reported consistent growth in net interest income over the last 10 years. It has increased steadily from RM4.48 billion in 2007 to RM11.57 billion in 2016. This is because Maybank’s growth in loans, advances, and financing assets have exceeded its marginal reduction in net interest margins during the period.

Source: Maybank Annual Reports
3. Maybank has also achieved consistent growth in non-interest income over the last 10 years. It has increased steadily from RM2.72 billion in 2007 to RM6.17 billion in 2016. The growth was driven mainly from Maybank’s Islamic Banking operations and a wide range of other operating income. This income includes commissions, service charges, underwriting fees, brokerage income, and fees on loans, advances and financing.

Source: Maybank Annual Reports
4. As a result, Maybank has reported consistent growth in operating revenues over the last 10 years. It has risen from RM15.18 billion in 2007 to RM44.66 billion in 2016. This is directly contributed by steady growth in both net interest income and non-interest income as explained in Points 2 and 3.

Source: Maybank Annual Reports
5. Maybank’s earnings are dependent on the amount of impairment losses incurred on its loans, advances, and financing assets. For instance:
  • 2009 – Maybank incurred RM1.70 billion in impairment losses, a substantial increase from the amount incurred in 2007 and 2008. The hike in impairment losses exceeded its growth in operating revenues in 2009. As a result, Maybank reported RM692 million in shareholders’ earnings — the lowest made in the 10-year period.
  • 2010 – 2014 – Since then, Maybank has reduced its impairment losses. This is evident as impairment losses were under RM1 billion from 2011 to 2014. In tandem with rising operating revenues, Maybank recorded steady growth in shareholders’ earnings, increasing from RM3.82 billion in 2010 to RM6.72 billion in 2014.
  • 2015 – 2016 – Maybank incurred substantially higher impairment losses in 2015 and 2016. This cancelled Maybank’s continuous growth in operating revenues. As a result, Maybank’s shareholders’ earnings were maintained at RM6.50-7.00 billion a year in 2015 and 2016.

Source: Maybank Annual Reports
6. Maybank has reported continuous marginal decline in return on equity (ROE) since the financial year ended 31 December 2011. ROE dropped from 16.2% in 2011 to 10.60% in 2016. This is because Maybank’s growth in shareholders’ equity has surpassed its growth in shareholders’ earnings over the last five years. It is an effort of Maybank to be well-capitalized to meet the requirements of the implementation of Basel III in advance.

Source: Maybank Annual Reports
7. Maybank has huge fluctuations in net cash flows from operations. This is normal as banks have huge fluctuations in working capital. These include changes in customers’ deposits and changes in loans, advances and financing. As such, it is impossible to use the discounted cash flow method to estimate the intrinsic value of a bank stock. Excluding changes in working capital, I’ve discovered that Maybank has generated higher operating cash flows over the last 10 years. It increased from RM5.74 billion in 2006 to RM11.37 billion in 2016. In total, the total operating cash flows before working capital changes generated amounted to RM86.98 billion during the 10-year period.

Source: Maybank Annual Reports
8. Maybank has paid out RM35.22 billion in dividends to its existing shareholders over the last 10 years. At present, Maybank has a long-term dividend policy to pay out 40-60% of its net profits to shareholders. However, Maybank’s dividend payout ratio has actually averaged 75.2% a year from 2007 to 2016. This means, Maybank has paid out, on average, RM75.20 in dividends from every RM100 in shareholders’ earnings during the period. Thus, Maybank has the highest dividend payout ratio among all public-listed banking groups in Malaysia and Singapore. In 2016, Maybank declared and paid out RM0.52 in dividends per share. As of 3 August 2017, Maybank is trading at RM9.64 a share. If Maybank is able to maintain its dividend at RM0.52, its expected dividend yield is 5.4%.

Source: Maybank Annual Reports
9. Maybank maintained a healthy liquidity coverage ratio (LCR) of 134% in Q1 2017. It is above the minimum requirement of 80% set by Bank Negara Malaysia starting on 1 January 2017. LCR is used to assess a bank’s resilience to withstand an acute liquidity stress scenario over a 30-day horizon. It is calculated by dividing the amount of High Quality Liquid Assets (HQLA) with net cash outflows over a 30-day period. A high ratio indicates that a bank has adequate HQLA to meet liquidity requirements for the next 30 days under a significant stress scenario. HQLA is defined as liquid assets that can be easily and immediately converted into cash at little or no loss of value.
10. Maybank maintained a healthy capital position with a total capital ratio (TCR) of 18.50% in Q1 2017. It is above the total regulatory requirement of 9.25% set by Bank Negara Malaysia for 2017. The total regulatory requirement is the addition of 8.0% in minimum total capital and 1.25% in phase-in capital conservation buffer for 2017.
11. Maybank reported loan loss coverage of 71.2% in Q1 2017, the lowest since 2008. It is currently below the industry average of 96.3% reported by Bank Negara Malaysia in 2016. This means, in percentage terms, Maybank has set aside lower provisions to cover for non-performing loans in comparison to most domestic banks in Malaysia in 2016.

Source: Maybank Annual Reports

Moving forward…

Maybank has revealed its corporate targets, outlooks and strategic objectives over the short-term. They include:
12. For 2017, Maybank has revealed three major Key Performance Indicators (KPI). It targets to achieve ROE of 10-11%, group loans growth and group deposits growth of 6-7% in the current financial year. The targets were comparable to actual key indicators achieved in 2016.
  2016 2017 Target
Return on Equity 10.6% 10-11%
Group Loans Growth 5.7% 6-7%
Group Deposits Growth 5.2% 6-7%
Source: Maybank Annual Reports
13. In the mid-term, Maybank has identified five strategic objectives under Maybank 2020. They include:
  • The Top ASEAN Community Bank. Maybank is strategically located to capture the continuous growth in the middle-income population across Southeast Asia. For 2017, Maybank is committed to focus on managing its Retail SME and Wealth Management businesses and innovate its digital services to enhance digital banking sales and transactions across ASEAN.
  • The Leading ASEAN Wholesale Bank Linking Asia. Presently, Maybank is the market leader in corporate lending, trade finance, and corporate deposits. For 2017, Maybank intends to focus on client-centric solutions to provide better access to capital, facilitate connectivity and efficient management of cash flows across Southeast Asia.
  • The Leading ASEAN insurer. Maybank is the market leader in combined general insurance and takaful business in Malaysia. It has expanded its presence to Singapore and the Philippines. For 2017, Maybank intends to strengthen its bancassurance relationship between Etiqa and Maybank, and drive productivity by leveraging on digital tools such as and Etiqa’s direct sales portal.
  • The Global Leader in Islamic Finance. Maybank is a leading Sukuk arranger as it ranked top two in the Global Sukuk League Table in 2016. It intends to create stronger global visibility through participation of more landmark deals.
  • Digital Bank of Choice. In 2016, Maybank launched MaybankPay, the first mobile wallet in Malaysia. For 2017, Maybank intends to explore more innovation digital solutions and to nurture regional growth in fintech to support its aspiration for Maybank 2020.

The fifth perspective

In summary, Maybank has built a track record of delivering growth in operating revenues and shareholders’ earnings over the last 10 years. It is well-capitalized with a total capital ratio of 18.50% in Q1 2017.
Management of asset quality is one of Maybank’s focus in 2017 as it incurred higher impairment losses in 2016 and reported its lowest loan loss provision of 71.2% in Q1 2017. Moving forward, the board expects its financial performance in 2017 to remain satisfactory as it strives to cement its position as one of the top banking groups in Southeast Asia.