Almost every Malaysian would have opened their first bank account with this bank. It is commonly seen as the national bank of Malaysia and rightly so. That is because Malayan Banking Berhad (KLSE:MAYBANK), or more commonly known as Maybank, is the largest financial institution in Malaysia by asset size. By the end of 2016, it managed RM736 billion in asset and has more than RM490 billion in deposits. Its closest competitor, CIMB Group Holdings Bhd (KLSE:CIMB) (CIMB 6.68 0.00 0.00%), has an asset and deposit size of “just” RM486 billion and RM336 billion respectively.
Maybank is also the fourth largest bank in ASEAN, behind the three local banks in Singapore; DBS Holdings Group Holdings Ltd (SGX:D05) (D05 20.36 +0.01 +0.05%), United Overseas Bank Ltd (SGX:U11) (U11 22.94 +0.01 +0.04%) and Oversea-Chinese Banking Corp. Limited (SGX: O39) (O39 10.75 +0.02 +0.19%). Listed on Bursa Malaysia, it has been a great investment for its shareholders over the past 40 years.
However, the questions in investors’ mind now might be:
- Is Malayan Banking Berhad still a good investment?
- Is there still room to grow for the massive bank?
Let us investigate that with the key things you need to know about Maybank.
TICKER SYMBOL: KLSE:MAYBANK | 1155.KL
MARKET CAP: RM 96.2 Billion (Updated 12th May 2017)
2. The Business
Started in 1960 in Malaysia, Malayan Banking, Maybank, is now a global bank with presences in 20 countries. It counts Malaysia, Singapore and Indonesia as its key markets. In 2016, only 77% of its profit before tax was generated in Malaysia. Singapore and Indonesia contributed about 9.9% and 8.9% in its profit before tax in 2016 respectively.
Moreover, about 43.3% of gross loans of Maybank is originated from overseas, showing that Maybank is more than just a local banking giant.
The bank has three named segment of business:
- Group community financial services
- The Group global banking
- Group insurance and takaful
Community Financial Services
This segment includes businesses such as its consumer banking and business banking for small and mid-sized companies. This segment currently made up about 42% of the group’s profit before tax in 2016.
Maybank grouped its corporate banking, global market, investment banking, transaction banking and asset management departments into its global banking segment. This segment is the main profit contributor for the company, accounting for more than 50% of profit before tax in 2016.
Insurance and Takaful
The group insurance is mainly done through its 69.05% owned Maybank Ageas Holdings, which owned the Etiqa brand of insurance companies. Etiqa is currently one of the largest insurance company in Malaysia. This group contributes about 7.9% to the bank’s overall profit before tax.
3. Key Opportunities
Strong Macro Trends
Maybank is located in a fast-growing region of ASEAN. Its key market of Malaysia, Singapore and Indonesia is some of the largest economies in the region and still experiencing good growth numbers. Through its acquisition of PT Bank Internasional Indonesia (BII) in 2008, Maybank has established a strong presence in Indonesia and is now one of the largest banks in the country.
With a strong balance sheet, it has the ability to expand aggressively in the region and capture the fasting financial sector in this part of the world. Maybank’s common equity tier 1 ratio, a common measure of financial strength for banks, is close to 14% at the end of 2016. That is a very strong figure and give Maybank a strong reputation as a regional strong and stable bank.
The Start of ASEAN Economic Community (AEC)
ASEAN is home to more than 600 million people. Although the ASEAN Economic Community (AEC) has been developing very slowly, it is clear that it is the direction ASEAN is taking for the long-term future of the region. Maybank has been growing long before there are talks about integration in the region and it has been very successful till now. Moreover, it has only been operating mainly in a market of fewer than 30 million people.
If the region is able to form a more integrated economy together, the potential for more trades and commerce are huge. And as one of the largest financial institution here in ASEAN, Maybank is very well-positioned to participate in this growth and help businesses around ASEAN to do more business with one another.
Even though Maybank is the largest bank in Malaysia, it is not a passive player when it comes to adapting new technology. Maybank is a leading bank in pushing new technology to empower more of its customers. It now has applications like e-wallet, e-banking and even e-insurance for its customers. In fact, it is the number 1 digital insurance player in Malaysia and has generated more than RM100 million in premium through digital channels.
With a forward-thinking management, it might continue to lead the way in the digital transformation of the banking industry in Malaysia.
4. Key Risks
Rise of FinTech
As such a big organization, there are many risks and threats that are awaiting Malayan Banking Bhd. One such threat is the rise of FinTech, or Financial Technology firms. We have seen how technology has disrupted traditional businesses such as retailing (Alibaba), transportation (Grab | Didi Chuxing) and even telecommunication (WeChat and Whatsapp).
Technology has the ability to lower the playing field and allow small players to compete directly with industry leaders. In recent years, there have been huge amount of investments going into FinTech, enabling many of them to produce new products and solution that were traditionally offered only through the banks. It is still unclear how the new technology might disrupt the banking business, but it is important for investors to keep an eye on the development of this fast-growing industry.
In recent years, the banks in the region have been facing higher default rates on their loans. This was mainly due to the downturn in the oil and gas industry. The slower growth in the Chinese economy might also have some spillover effects across the region.
Maybank was not spared during the past few years. Its net impaired loans ratio grew from just 0.95% in 2013 to about 1.62% in 2016. That is a 70.5% increase in bad loans. Given that banks are inherently highly leveraged companies, the sharp increase in impaired loans ratio is a worrying sign for investors.
Why Is It A Worry?
Banks generally operates with customers’ deposits and additional loans and issued bonds. This means that a bank would need very little of its own capital to start operating. Typically, a bank might only have an equity to asset ratio of just 10%. So, for every one dollar it actually owns, it has nine dollars of OPM (other people’s money) This means that if the bank loses just 5% of its asset, it might see 50% of the bank’s equity destroyed just to cover that loss.
Maybank is current trading at about 13.8 times its earnings and at 1.4 times its book value. The bank also provides an attractive yield now at about 4.5%. Based on its last 5-years average, the bank is currently trading below its average valuation of 15 times earnings and 1.7 times book value.
6. Investor Relations
Investor Relation Material:
The Investor Relations office is located at:
Group Performance Reporting & Investor Relations
Malayan Banking Berhad (Maybank)
41st floor, Menara Maybank
100 Jalan Tun Perak
50050 Kuala Lumpur
The IR email is email@example.com
The IR team are:
Ms. Jeeva Arulampalam
Head, Group Investor Relations
Contact: (6)03-2074 8346
Ms. Ng Ee Laine
Investor Relations Equities Manager
Contact: (6)03-2074 8582
7. Top Shareholders (31stDec 2016)
- Amanah Saham Bumiputera – 35.86%
- Employees Provident Fund Board – 15.11%
- Permodalan Nasional Bhd – 6.46%
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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned.