Maybank (MAY MK, FV: RM9.60, Close: RM8.74)

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD

Research House: OSK

Price Call: BUY

Target Price: 9.60

Sweating Its Branches

Despite Maybank's  sizeable domesticbranch network,  its  productivity level remains significantlybelow its key competitors'. Efforts to raise productivity at its branches aregradually bearing fruit, including recent key operating parameters under itsCommunity Financial Service platform launched in 2010.  We  areoptimistic of the group's regional growth thrust and targets to regain itsdomestic consumer market leadership. We maintain our earnings assumptionsand  FV of RM9.60 (2.06x FY12 P/BV, 14.7%ROE).  The stock  is currently trading at an undemanding 1.8xFY12 P/BV, with a compelling gross dividend yield of 7.2%  'the highest among domestic banking stocks.Maintain BUY.

Community FinancialService platform gains traction. Maybank  only  launched its Community Financial ServicePlatform (CFS) in 2010 and yet the benefits arising from the rejuvenated organizationalstructure are already starting to filter through. This is reflected in thegroup's recent 6MFY11 24% annualized SME/business deposit growth and a growthof more than 70% over the past 18 months.

More scope forgrowth. The CFS initiative essentially strives to transform its branches intoa one-stop distribution network for both retail and SME/Business bankingservices. This will help drive incremental revenue growth and lower thecost-to-income ratio by maximizing shared resources across the branches. In thepast, potential SME/Business customers' contact points were previously  confined to the group's dedicated business centres in the major cities. This hadhampered the group's SME business growth in the past and allowed the likes ofPublic Bank to gain significant market share at Maybank's expense,  despite the latter's  superior branchnetwork. For example, shop house and non-residential property mortgagescontribute to a relatively significant 22% of Public Bank's total loancomposition, but Maybank's is a mere 1.8%.

Raising branchproductivity. Although Maybank is ranked third in terms of domestic loans per branch, the level ofproductivity is nearly 50% lower than that of industry leader  Public Bank.  This coupled with its significantly largerbranch network and Malaysia's relatively young population  demographics indicate that there issignificant room for  the group  to gain market share over the longer term,provided that management  can  successfully execute and  push through its CFS initiative, including focusing its efforts on growingits high net worth retail customer segment.

Source: OSK188