May­bank’s dig­i­tal ini­tia­tives en­cour­ag­ing

> Move ex­pected to con­trib­ute pos­i­tively to the group’s earn­ings: An­a­lysts

The Sun (Malaysia) - - SUNBIZ -

PETALING JAYA: An­a­lysts have lauded Malayan Bank­ing Bhd’s (May­bank) dig­i­tal ini­tia­tives, which they opined will con­trib­ute pos­i­tively to its earn­ings.

“We be­lieve that tar­get­ing mil­len­ni­als makes strate­gic sense given this age group’s preva­lence in dig­i­tal us­age. We are pleas­antly sur­prised by the group’s di­rec­tion to cre­ate an in-house re­search and de­vel­op­ment (R&D) team and we be­lieve that this will en­sure its dig­i­tal of­fer­ings are ro­bust,” said MIDF Re­search, which is main­tain­ing a “buy” call on May­bank with a tar­get price of RM10.30 given the group’s pos­i­tive out­look.

The re­search house said that the most ob­vi­ous ben­e­fit from bet­ter dig­i­tal of­fer­ings will be cost sav­ings from ar­eas such as lower per­son­nel costs due to a lower head­count, as most pro­cesses are au­to­mated, lower cost-to-serve and less main­te­nance spend­ing on ven­dors.

“Also, we un­der­stand that bet­ter pro­duc­tiv­ity can be ex­pected from per­son­nel and more tai­lored cus­tomer fo­cus. The dig­i­tal ini­tia­tives are also ex­pected to en­hance rev­enue through more cross sell­ing and bundling of prod­ucts.”

With data an­a­lyt­ics, MIDF Re­search said May­bank could tai­lor fi­nan­cial so­lu­tions for its cus­tomers. This in­cludes on-board­ing of SMEs, which are mainly on­line traders, and sub­se­quently en­hanc­ing de­posit-tak­ing ca­pa­bil­i­ties.

While it is op­ti­mistic on the po­ten­tial of dig­i­tal ini­tia­tives, MIDF Re­search said the cost and rev­enue associated from these ini­tia­tives are em­bed­ded into the group’s fi­nan­cial re­sults. There­fore it is very dif­fi­cult to truly mea­sure the im­pact.

“Nev­er­the­less, we have seen cost-toin­come ra­tio on a down­trend re­cently for the group where it posted 47.9% in Q2’FY17 from 50.3% and 48.9% in Q1’FY17 and Q2’FY16 re­spec­tively, which might give an in­di­ca­tion on the im­pact of the dig­i­tal ini­tia­tives.”

MIDF Re­search said it un­der­stands the need for May­bank to main­tain its dom­i­nant po­si­tion in the dig­i­tal of­fer­ing due to the fact that the num­ber of cash­less trans­ac­tions, whether through in­ter­net bank­ing, mo­bile wal­let or debit cards, are on the rise.

“We are not sur­prised by the man­age­ment’s ex­pec­ta­tion of trans­ac­tion value via mo­bile for the group to reach RM22 bil­lion in 2017, or 95% year-on-year growth.”

Mean­while, Hong Leong In­vest­ment Bank (HLIB) Re­search said it is pos­i­tive on May­bank’s lat­est move, as de­cent return is ex­pected from its dig­i­tal ef­fort, es­pe­cially in gar­ner­ing new po­ten­tial business (new loan ap­pli­ca­tions, cur­rent ac­counts and sav­ings ac­counts) with a shorter turn­around time.

“The growth of dig­i­tal bank­ing forces banks to re-tai­lor their business model, in­clud­ing re­cur­ring in­vest­ment in dig­i­tal bank­ing, to re­main com­pet­i­tive and rel­e­vant. While in­vest­ment value ear­marked for dig­i­tal ini­tia­tives is un­known, we be­lieve May­bank is lever­ag­ing on its in-house dig­i­tal R&D team, hence elim­i­nat­ing the ex­or­bi­tant con­sul­tant fees.”

The re­search house said it con­tin­ues to like May­bank for its well-bal­anced ex­po­sure in both re­tail and cor­po­rate seg­ments.

“May­bank is the front run­ner ben­e­fi­ciary and the best proxy to ride on a con­tin­ued ex­pan­sion in the Malaysian econ­omy.”

HLIB Re­search is main­tain­ing a “buy” call on May­bank with a tar­get price of RM10.70. The stock closed 18 sen, or 1.97%, higher at RM9.34 yes­ter­day, with some 16.87 mil­lion shares chang­ing hands.

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