SO how would the securing of digital banking licenses impact the prospects of listed entities who are members of the so-called winning consortiums?
Recall that Bank Negara Malaysia (BNM) has announced the five licence winners last Friday (April 29).
Three conventional digital banking licenses were awarded to a consortium of Boost Holdings Sdn Bhd and RHB Bank Bhd; a consortium led by GXS Bank Pte Ltd and Kuok Brothers Sdn Bhd; and a consortium led by SEA Ltd (parent company of Shopee and YTL Digital Capital Sdn Bhd).
Winners of the two Islamic digital banking licenses are AEON Financial Service/AEON Credit Service/Money Lion and the KAF Investment Bank consortium.
How would the consortium members sort out their roles and differences? Below are excerpts of what Maybank IB Research sees in their digital banking participation:
Axiata Group Bhd
The 60:40 Boost Holdings (effective 75% subsidiary of Axiata)-RHB Bank consortium was expectedly awarded a digital bank license having been among the frontrunners during the bidding process.
While earnings impact is immaterial in the initial years, the digital bank license offers yet another value creation avenue for Axiata’s digital businesses. Maintain “buy” with an unchanged sums-of-part (SOP)-based target price of RM4.50.
Initial capital requirement for the digital bank is RM100 mil (Boost’s portion would be RM60 mil), rising to RM300 mil after three years. Bank Negara Malaysia (BNM) expects these new digital banks to begin operations in mid-2023.
As evident from the shareholding split, we expect Boost to take the lead in the digital bank. Positioned among the top three e-wallets in Malaysia, Boost already has a credit business (having disbursed circa RM900 mil of loans) and an associated digital processes/infrastructure in place.
With a digital bank, the overall cost of funding would be further lowered in the research house’s view. RHB meanwhile would offer the regulatory and back-end expertise pertaining to banking.
RHB Bank Bhd
That RHB Bank will now have a 40% stake in a digital bank is neutral on financials in the short term as the digital bank is only expected to be operational from 2H 2023 but positive on the long term.
Maybank IB Research maintained its “buy” call but raised its target price marginally to RM7.10 (from RM6.90 previously), supported by an ROE (return on equity) of 9.8%. At its target price, RHB Bank’s FY2022 dividend yield would still be an attractive 4.2%.
What the consortium brings to the table is Boost’s fintech experience and RHB’s banking services knowledge which combined, will allow the digital bank to build a comprehensive suite of affordable and accessible financial solutions.
The primary aim of this is to broaden financial inclusion among the underserved/unbanked population.
On its own, RHB has budgeted to spend RM300 mil on IT infrastructure modernisation and RM200 mil on digital projects. To-date, it has spent 60% and 70% respectively of its budget.
That RHB Bank has decided to participate in the digital banking space is two-fold: (i) it will allow the bank to tap into a relatively separate market segment (of the under-served population) while (ii) over the long term, it envisages that there could be the possibility of referral work from the digital to the conventional bank as income levels rise and demand increases among the digital bank’s customers for more sophisticated products.
YTL Power International Bhd
The SEA (parent of Shopee) YTL Digital (100% subsidiary of YTL Power) consortium was expectedly awarded the digital bank license, having been among the frontrunners during the bidding process.
Maybank IB Research reiterated its “buy” rating on YTL Power ith an unchanged SOP-based target price of 90 sen with YTL Power being able to comfortably sustain a 5 sen annual dividend per share payout in the coming years.
Given previous uncertainty, the announcement also confirmed that the YTL group’s exposure to the digital bank would be via YTL Power. The shareholding split of the consortium remains unknown at the time of writing with media reports alluding to YTL Power having majority control.
Given SEA’s digital expertise (including digital banking in Singapore), Maybank IB Research expects YTL Power to play a support role in the digital bank operations.
The digital bank is unlikely to contribute materially to YTL Power’s earnings in the initial years. However, the digital bank license further solidifies the relationship between SEA and the YTL group (YTL Communications Sdn Bhd already runs a reward programme with Shopee).
Maybank IB Research does not rule out more of such collaborations in future. – May 5, 2022
Pic credit: Tech Wire Asia
