According to CIMB Research, Maybank
KUALA LUMPUR: CIMB Equities Research is upgrading Maybank from a Hold to an Add and raised the target price from RM9.75 to RM10 on the positive outlook for its insurance income.
The research house said on Thursday there were five reasons for its upgrade of the country’s largest bank by assets.
They are: (1) more attractive valuations following the recent drop in share price, (2) swift expansion in insurance income, (3) potential introduction of Islamic shares in Maybank by Permodalan Nasional Berhad (PNB), (4) potential listing of Etiqa, and (5) attractive FY19F dividend yield of 6.4%, which is the highest among Malaysian banks and large-cap stocks that we cover.
CIMB Research said it nudged up its growth rate assumption for the interim growth phase of its dividend discount model (DDM) model from 4.0% to 4.3%.
“Our higher growth rate assumption reflects the positive outlook for its insurance income in view of the strong 18- 28% on-year growth in net earned insurance premium in the past four quarters,” it said.
The research house also said following the 13.8% drop in share price from an all-time high on May 22, 2018, Maybank’s one-year rolling forward price-to-earnings (P/E) fell from 14 times at end-April 2018 to a more reasonable level of 12.1 times on June 25, 2018.
Also, Mayybank’s forward price-to-book value (P/BV) fell from 1.49 times to 1.28 times (below the historical five-year average of 1.32 times) over the same period.
“We think that the drop in share price presents an opportunity for investors to accumulate Maybank shares at lower valuations,” it said.
CIMB Research sees Maybank’s insurance/takaful business as the bright spot for the group’s earnings. Indeed, its net earned insurance premium surged 18%-28% on-year in the past four quarters (from 2Q17 to 1Q18).
“We attribute this to the group’s push to expand its insurance businesses, partly leveraging its established regional network. We expect the bank to stay on this trajectory in 2Q18F, with an expected premium growth of at least 20% on-year,” it said.
Re-rating catalysts for Maybank may come from two potential value-creating corporate exercises: (1) the introduction of Islamic shares (i-shares) in Maybank, and (2) the listing of its insurance unit, Etiqa.
CIMB Research thinks that Maybank i-shares could fetch a 20% premium over BIMB’s FY19F P/E of 9.4 times on June 21, 2018.
“We estimate this translates into 17.3% upside to Maybank’s share price. For Etiqa listing, Maybank shareholders could get 9-17 sen worth of Etiqa shares, based on our estimates,” it said.
However, the possible downside risks to its Add call for Maybank: (1) chunky provisioning for Hyflux exposure, which could dampen its 2Q18F net profit, (2) slowdown in loan growth, and (3) more defaults on its corporate loans in Singapore.
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