Malaysia largest banking firms by asset value are Maybank and CIMB. Their stock price closed at RM9.38 and RM 5.59 respectively today, which translates to a fall of 13% and 23% since its peak in 2Q18. But are they cheap? Before we answer this question, lets look into their fundamental metrics.
Firstly, non-performing loan (NPL) ratio. A growing percentage of NPL is an unhealthy sign of loan management. NPL may lead to a loan default. CIMB has been maintaining its NPL ratio < 3.5% while Maybank has been impressively keeping its NPL ratio < 1.6% for the past 5 years. Recommended benchmark by Fools.com is <2%
What about Tier 1 Capital Ratio (CAR) ratio? According to Investopedia defination, Tier 1 CAR is the capital that is permanently and easily available to cushion losses suffered by a bank without it being required to stop operating. In FY2017, Maybank and CIMB both recorded Tier 1 CAR > 16, exceeding Basel III accord requirement of 4.5.
Return of asset (ROA) gives us an idea on how effective does the bank uses its asset to generate income. Maybank and CIMB generated an average of 5.9% and 3.5% per annum respectively in past 5 years. Recommended benchmark by Fools.com is >2%
Lets look into their Dividend performance in FY2017 against today’s price. Maybank dished out 5.8% (vs CIMB 4.5%) and has been growing its dividend by about 4.7% (vs CIMB 6%) in the last 5 years.
Lastly (and most importantly), we will look into the banks past Profit performance. Maybank recorded profit growth of 13% in 5 years. On the other hand, CIMB profit dipped 1.5% for the same period.
“From a broad view, Maybank’s performance has an edge over CIMB based on the above metrics”
How cheap are these banks?
One of the key metrics to look into is the price to book (P/B) ratio, which measures how much a bank is trading against its asset value. P/B < 1 , indicates that bank stock is selling below its asset value. Maybank is selling at a premium P/B of 1.38. CIMB however traded closer to its asset value with P/B ratio of 1.06. Recommended benchmark by Fools.com is between 0.5 to 2.0
“We can generally summarise that Maybank is a more valued stock by investors because it is traded at a 38% premium over its asset value. This may be largely due to its stronger performance based on the fundamental metrics”
Lastly, lets look into OCBC, which is Singapore’s 2nd largest bank as a case study. I state the metrics below using OCBC’s FY2017 annual report for your own comparison and decide how does Maybank or CIMB compare to an oversea bank
NPL – 1.5% , Tier1 CAR – 14.9, ROA – 2.1%, Dividend – 3.4%, Profit growth (last 5 years) – 45%, P/B – 1.22
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Diclosures: I own stocks in Maybank, CIMB and OCBC when this article was written. Any information, commentary, recommendations or statements of opinion provided here are for general information purposes only.