Case Study: (16 April 2020) : Malayan Banking BHD
Case Study: (16 April 2020) : Malayan Banking BHD
Case Study: (16 April 2020) : Malayan Banking BHD
Step #1:
What does it do?
Step #2:
Check Stability Ratios
Notes:
MBB has enlarged its LAF Assets, up from RM 403.5 billion in 2014 to
as much as RM 512.3 billion in Q4 2019. This has led to its growth in
net interest income, which resulted in higher total income (Step #3).
2. Gross Impaired Loan Ratio (GILR)
(Low GLIR = Good Portfolio of Borrowers)
MBB has maintained its GLIR at 2.0-3.0%. At GLIR of 2.65%, MBB’s GLIR
is above its industry average of 1.6% currently.
Step #3:
Check Financial Results
Notes:
1. Total Income (TI)
(TI = Net Interest Income + Non-Interest Income + Islamic Banking ... etc)
MBB has grown its TI from RM 18.5 billion in 2014 to RM 23.7 billion in
2018. It is attributed to consistent growth in Net Interest Income and
Islamic Banking income during the period.
MBB grew its SE from RM 6.7 billion in 2014 to RM 8.1 billion in 2018.
This is attributable to its increase in TI and steady cost-to-revenue ratio
during the period.
Step #4:
Check Quarterly Results
Notes:
Over the past 12 months, MBB has generated RM 8.198 billion in shareholders’
earnings or earnings per share (EPS) of 73.40 sen. Its 12-month ROE is 10.1%. It
means, MBB had made RM 10.05 from every RM 100.00 it has in shareholders’
equity for the last 12 months.
Step #5:
Check P/E Ratio
For the last 12 months, MBB has made 72.79 sen in EPS. Its current P/E Ratio is
10.33, which is below its 10-year P/E Ratio average of 12.93.
P/E Ratio Formula:
= Stock Price / EPS
= RM 7.58 / RM 0.734
= 10.33
Key Statistics:
10-Year P/E Ratio Lowest: 11.67
10-Year P/E Ratio Highest: 14.56
10-Year P/E Ratio Average: 12.93
Current P/E Ratio: 10.33
Step #6:
Check P/B Ratio
As of 31 December 2019, MBB has net assets of RM 7.26 per share. Thus, MBB
has a current P/B Ratio of 1.04, which is below its 10-year P/B Ratio average of
1.62.
Key Statistics:
10-Year P/B Ratio Lowest: 1.19
10-Year P/B Ratio Highest: 2.00
10-Year P/B Ratio Average: 1.62
Current P/B Ratio: 1.04
Step #7:
What’s my Dividend Yields?
In 2019, MBB has declared 64.0 sen in dividends per share (DPS), hence, having
maintained a stable dividend payout for the last 10 years as shown below:
Thus, its current dividend yield is 6.43% per annum, below its 10-year Dividend
Yield average of 6.54% per annum.
Key Statistics:
10-Year Dividend Yield Lowest: 5.38%
10-Year Dividend Yield Highest: 8.39%
10-Year Dividend Yield Average: 6.54%
Current Dividend Yield: 8.44%
Step #9:
Understanding the Relationship of
MBB’s Stock Price and its Shareholders’ Earnings
Source: Google Finance
Notes:
In a glance, it looked like the growth in earnings has not led to growth in stock
prices.
But, if we look at MBB’s EPS or DPS figures, we would have a better picture
that explains why MBB’s stock price had been flat since 2012, hovering
between RM 7.50 - RM 10.50 for the last 6-7 years.
So, what caused MBB’s EPS and DPS to fall despite a gradual rise in earnings for
the last 6-7 years?
DRIP is a plan that allows MBB’s existing shareholders to receive its dividends
in the form of MBB shares, instead of cash. Starting in 2010, the take-up rate
for it has been kept at 80+%, indicating a high level of take-ups in DRIP by
investors.
Hence, it caused the number of ordinary shares issued to increase over time. It
has caused its EPS to be diluted over time. Hence, its stock price would then be
valued according to its diluted EPS, which explains why MBB’s stock price failed
to appreciate over time.
Thus,
Not necessarily. It is inaccurate to judge MBB based on its stock price alone.
The total returns for investing in MBB should be calculated based on:
Total Returns:
= Dividend Yield + Capital Gains + Extra Shares Received.
When to Opt for Cash and When to Opt for DRIP?
First, it is best to set a fixed target price. Different people have different prices
that would be set in their minds. They can be based on their desired P/E & P/B
Ratio and dividend yields.
So, let’s say RM 9.00 is the price that you set. (I’m just giving an example).
If the DRIP offer is below RM 9.00, choose DRIP. If the DRIP is above RM 9.00, it
is evident that you should choose cash.
Hence, to accept DRIP or not, depends greatly on your target price. Please note
that I’m not suggesting RM 9.00 as the target price. If you ask me, my answer is
based on its average P/E Ratio, P/B Ratio and Dividend yields.
Snapshot:
As at 16 April 2020, we have the following:
Disclaimer:
The case study above is intended for education & illustration purposes and is
strictly not intended to be an investment advice or recommendation to buy /
hold / sell the securities mentioned.
The author disclaims any reward or responsibility for any gains or losses arising
from direct and indirect use & application of any contents of the case study
above.