Malayan Banking Bhd

The Malaysian banking industry is entering challenging times. Softness in the property sector and weak consumer spending is weighing down on loan growth. Meanwhile, margins are narrowing and non-performing loans could rise as economic growth weakens and consumers feel the brunt of high household debts. 

In this challenging environment, we favor Maybank among the banks (Fundamental: 1.5/3, Valuation: 1.45/3) for its resilient earnings, sustainable dividends, and strong market position, which we believe will help it weather the macro headwinds. 

Maybank is Malaysia’s largest banking group, and its shares are reasonably priced. The stock trades at 1.56 book, lower than Public Bank’s 2.50 times, but higher than CIMB’s  1.17 times, as the latter has been impacted by its Indonesian operations. In terms of trailing 12-month P/E ratios, Maybank is the lowest at 12.7 times compared with Public Bank’s 15.2 times and CIMB’s 17.1 times.

For the last 3 years, Maybank’s earnings have been on the upward trajectory — which extended to the first quarter of 2015, where net profit rose 4.7% to RM 1.7 billion. As competition for deposits heat up, Maybank has a well-balanced source of funding which results in stable net interest margins, unlike many smaller banks, whose margins have been contracting sharply. Maybank’s loan book has continued to grow strongly, up 14.4% y-y in the first quarter of 2015, while asset quality is strong with a low non-performing loans ratio of 1.5%. 

Among Malaysian banks, it is also less exposed to the problems in Indonesia, and it is instead poised to benefit from its large exposure in Singapore, which accounts for a quarter of total loans. 

Maybank has a dividend policy to maintain a 40-60% payout ratio, with the option to participate in its dividend reinvestment plan.  In FY2014, 57 sen — or a 6.2% dividend yield was declared, out of which 43 sen was offered for reinvestment with a 84% take up rate. Among Malaysian banks, it has the highest dividend yield, and apart from Public Bank, one of the highest sustainability of earnings.

This article first appeared in digitaledge Daily, on August 10, 2015.