This article first appeared in The Edge Financial Daily on November 15, 2017 - November 21, 2017

Malayan Banking Bhd
(Nov 14, RM9.34)
Maintain buy with an unchanged target price (TP) of RM10.30: We attended Malayan Banking Bhd’s (Maybank) digital day session with analysts and media on Monday. The session was intended to highlight the digital initiative that group had launched and the efforts behind it. Maybank is targeting to be “The Digital Bank of Choice”.

Digital initiative is nothing new for the group, as it is the first bank to launch an online banking platform in Malaysia in 2000. Its target to be the digital bank of choice is part of the group’s five key strategic objectives for Maybank 2020.

The initiative aims to enhance customers’ experience and target more technically savvy customers, such as millennials. Maybank has an in-house research and development (R&D) team to ensure the group owns its ideas and intellectual property. The bank also expects cost savings and potential earnings accretion due to the better digital offering.

We understand that the group’s digital offering is not new as it was one of the leading proponents in online banking. Its online banking platform, Maybank2U, was launched in 2000, and from anecdotal evidence, it is one of the more preferred platforms.

However, with the population of its home market becoming more technologically savvy, it needs to update its offering to stay ahead of its peers. This includes the launch of its mobile app in the first quarter ended March 31, 2017 (1QFY17).

We believe that the group is future proofing its product offering with its digital initiatives. Our view is premised upon the focus it has on ensuring a strong online and mobile presence, which would appeal to millennials, who are more technologically savvy.  

The number of cashless transactions, whether through Internet banking, mobile wallet or debit cards, are on the rise. According to Bank Negara Malaysia’s statistics, from the period 2012 to 2016, the value of Interbank Giro transactions grew at a compound annual growth rate of 38% to RM767.6 billon. Therefore, we are not surprised by the management’s expectation of transaction value via mobile for the group to reach RM22 billion in 2017, or 95% growth year-on-year.

With data analytics, the group can tailor financial solutions for its customers. This includes on-boarding of small and medium enterprises which are mainly online traders. Subsequently, it will also enhance deposit-taking capabilities.

Overall, we are optimistic about the potential of the group’s digital initiatives. Unfortunately, the cost and revenue associated with these initiatives are embedded in the group’s financial result. Hence, it is very difficult to truly measure the impact. Nevertheless, we have seen cost-to-income ratio on a downtrend recently for the group, which posted 47.9% in 2QFY17 from 50.3% and 48.9% in 1QFY17 and 2QFY16 respectively, which might give an indication of the impact of the digital initiatives.

Meanwhile, with the lack of details and pending the announcement of the group’s 3QFY17 result, we make no change to our forecasts for now. However, we are pleasantly surprised by the group’s direction to create an in-house R&D team and we believe that this will ensure its digital offerings are robust.

With a positive outlook on the group, we maintain our “buy” call with unchanged TP of RM10.30 as we peg FY18 book value per share at 1.4 times. — MIDF Research, Nov 14