Malaysia : Maybank

Company Description :-
The largest banking group in Malaysia in term of asset size. Lending is mostly channelled to the consumer segment, which accounts for almost half of its local loan portfolio. Maybank also has sizeable exposure to foreign markets, with foreign loans, mainly in Singapore and Indonesia, making up 33% of its total loan base.

Valuation:
Rating : BUY
Share Price : RM7.74
Target Price : RM8.80
Upside : +12%

Recommendation:
Maintain BUY with a target price of RM8.80, pegged at 2.2x P/B (at its 10-year mean), which is also the banking sector’s P/B. At RM8.80, we value Maybank at 18.8x FY10F PE and 16.0x FY11F PE. Maybank gives great exposure to a revival in loan growth from a resilient domestic economy coupled with strong overseas growth, especially in Indonesia, and strong treasury income.

Stock Impact:
1)Better communication and coordination to drive businesses.
It is repositioning its operations to capture more value from its existing large customer base. Improving communication between its investment banking and global markets units is translating into greater business volume. This should be seen in the next financial year (FY11), when management is likely to guide better-than-industry loan growth.

2) Domestic economic recovery play.
The above developments come at the right time to make it a Malaysian economic recovery play, especially to capture the resilient consumer loans and the strong recovery in business loans. This comes with the advantage of being the bank with the largest network in Malaysia. Investment banking is also finally making more aggressive moves, with a few initial public offerings (IPO) and big share placements recently to lead to greater pre-tax profit (PBT) contribution (9MFY10: 3%).

3)Indonesia is next growth story.
Contribution from Bank Internasional Indonesia (BII) is expected to grow 20-25% p.a. for the next five years to bring its contribution to the Group’s PBT from 5% currently to 15% by end-FY15. This strong growth will be supported by strong loan growth of 18-20% and high net interest margins of 6-7% (vs 2.3% in Malaysia) in the next 2-3 years.