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Maybank Manages Robust Growth Despite Uncertain Market Conditions
Tradeable, Tradeable Ideas | 11 June 2014
By: Lim Si Jie
Articles (169) Profile
  1. Robust growth reported by Maybank in Q1.
  2. Q1 performance came amidst tough market conditions.
  3. Outlook for the year remains positive but strong headwind in the upcoming year is expected.

Strong Q1 Reported By Maybank

Malayan Banking Bhd (Maybank) reported first-quarter net profit of RM8.36 billion which climbed 6.3 percent compared to Q1 last year. The rise in net profit was helped by strong loan growth, particularly at its Islamic banking division. The earnings were also boosted by its continued cost management initiatives under its Strategic Cost Management Programme.

Income from Islamic banking operations rose 31 percent to RM808.4 million. The current and savings account (CASA) deposit ratio in Singapore rose to 25.8 per cent for the three months to Mar 31, compared 20.4 per cent in the same period a year earlier.

Maybank’s latest results mark more than four years of year-on-year quarterly growth. When we look at a stock, we want to know that its business operations and ability to generate revenue and profit is consistent. We do not want to buy a business that makes profit only when it makes one-off transactions. The consistency of Maybank’s quarterly growth demonstrates its fundamental soundness.

Resilient Performance Despite Global Uncertainties
In the face of continued economic uncertainties globally, results in the first quarter came in relatively softer for the group. The impact, however, was cushioned by Maybank’s well diversified regional footprint and strong consumer franchise, which enabled us to sustain a steady pace of growth in the quarter.

However, the ability to register strong growth in key businesses like Community Financial Services (CFS), international and Islamic banking demonstrates Maybank’s strength and resilience amidst a challenging environment. Maybank is expected to see stronger momentum in earnings for the rest of 2014 with its new regional organisation structure now firmly in place and running.

Southeast Asian banks have been on a roll, benefiting from booming property markets and double-digit loan growth in rapidly expanding economies like Indonesia, Singapore and Thailand.

Maybank, led by new CEO Abdul Farid, is looking to ramp up expansion in Southeast Asia, seeking to boost overseas profits to 40 per cent of overall income in 2015 from about 30 per cent now.

Outlook For The Financial Year
The forward outlook for Maybank in key markets such as Malaysia, Singapore and Indonesia is positive. There will be more robust deposit gathering in Q2. Forward system loan and system deposit are expected to record positive growth with Indonesia expected to register double figure growth in both system loan and deposit.

However, there are some key trends that are developing in Maybank’s core markets.

In Indonesia, a policy mix of reserve requirements and market rate hikes could slow loan growth. Weakness in corporate lending is also expected as investments lack macro economic certainty. There will also be tighter liquidity owing to central bank’s monetary policy. Bank Internasional Indonesia experienced a challenging in the first quarter due to a drop in export activities in Indonesia while interest rates were also adjusted upward.

In Singapore, the residential property market shows signs of weakness, slowing housing loan growth.

In Malaysia, domestic demand is expected to moderate due to slower growth in consumer spending. But firmer external demand is expected as exports of goods and services rebound.

Bullish Despite Headwinds
Although Maybank is expected to encounter headwinds amidst continued concerns whether the global economy is recovering healthily, I am still bullish about Maybank’s prospects in the long run.

One of the reasons is its valuation. The NAV per share of Maybank is RM5.44. For banks, most of its assets are in very liquid assets, i.e. investments or cash. Investors are paying only a 1.8 times premium at its current price of RM9.84. The industry average is about 3 times premium of current share price for other banks. The current valuation on NAV represents a slightly cheaper premium than other financial institutions.

Investors could possibly wait and watch to see if they can pick up shares of Maybank at an even cheaper price if Maybank is affected by negative sentiments on new policies introduced by governments regarding loans.

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Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

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