The Three Numbers That Make Malayan Banking Berhad Attractive

There are lots to like about Malayan Banking Berhad (KLSE: MAYBANK; 1155.KL). It is not only the biggest bank in Malaysia but it is also the largest listed company on Bursa Malaysia.

Surprisingly, despite its wide geographic network that span more than 14 countries, Maybank’s market value of MYR84 billion (S$28b), is smaller than Singapore’s largest bank, DBS Group (SGX: D05), which is a-fifth more valuable at S$34 billion.

But what Maybank lacks in size, it makes up for in terms of profitability and efficiency.

Over the years, Maybank has been able to consistently deliver a Return on Equity in the mid-teens. In 2014, Maybank generated a return of 13.1%, which equates to MYR13.10 of bottom-line profit on every MYR100 of shareholder equity invested in the bank.

The high RoE can be traced to an above-average Net Income Margin of 37.2%. It means that Maybank makes MYR37.20 on every MYR100 of revenue it generates. That is not quite as high as Singapore’s biggest banks. The RoE for both DBS Group and United Overseas Bank (SGX: U11) are around 43%.

Whilst Maybank’s Net Income Margin is high, the same cannot be said of its Asset Turnover, which at 0.03 is quite low. That, however, is not too surprising for an asset-heavy bank. Maybank holds some MYR702 billion of assets, of which MYR447 billion are loans.

Maybank also makes use of leverage, which is not too surprising. It is after all a bank. So a Leverage Ratio of 11.7 is not too outrageous. That said, it makes use of more leverage than Oversea-Chinese Banking Corporation (SGX: O39), which has a Leverage Ratio of 10.4.

By dismantling the Return on Equity for Maybank, it is easy to see why the bank is attractive. Its RoE of 13.1% is the product of an enviable Net Income Margin of 37.2%; an Asset Turnover of 0.03 and a lofty Leverage Ratio of 11.7.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.