Maybank’s robust ROE expansion for 2021-2025 gets thumbs up

MALAYAN Banking Bhd’s (Maybank) aggressive return on equity (ROE) target of 13%-15% in 2025 as opposed to its own estimate of 9.5% has led to CGS-CIMB Research elevating the former’s stock to “add” from “hold” previously.

“We calculate that Maybank needs to record five-year net profit compound annual growth rate (CAGR) of 15%-19% in 2021-2025 to achieve ROE of 13%-15% (assuming dividend payout of 60%), resulting in net profit of RM10 bil – RM11 bil in FY2023F or 18%-30% above our projection,” opined analyst Winson Ng in a company update.

“Based on this, our target price will be between RM10.87 and RM11.95 (upside of 31%-44% to current price of RM8.29).”

Last Friday (April 9), Maybank hosted an Investor Day to present to the analyst fraternity its five-year strategic plan (2021-2025) dubbed M25. The three key pillars for M25 are (i) digital; (ii) new value drivers; and (3) sustainability.

Kenanga Research, meanwhile, maintained its “outperform” rating on Maybank but with a higher target price of RM10.60 (from RM8.75).

“Our higher target price is mainly derived from a higher applied ROE of 11% (which is below the management’s five-year target of 13%-15% given its long time horizon and execution risks involved),” justified analyst Clement Chua.

“Maybank is our top pick for the banking sector for its most favourable risk-to-reward with the highest dividend yield in the industry paired by solid ROE prospects.

“Its market leading position in loans and deposits should prove beneficial in an economic recovery phase while its CASA-to-deposit ratio of c.40% would ease access to funds.”

On the hindsight, UOB Kay Hian Research maintained its “hold” rating on Maybank with a target price of RM8.70 amid concern that “its five-year strategy will require a gestation period, thus unlikely to excite the share price in the near term”.

At 10,30am, Maybank was up 5 sen or 0.60% to RM8.34 with 1.76 million shares traded, thus valuing the company at RM95.19 bil. – April 12, 2021

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