In terms of stock picks, we have BUY calls on Public Bank, Maybank, Affin and RHB Cap. Hold AMMB, CIMB and AFG. Elsewhere, we maintain our Sell call on HLBB due to the huge premium (or FY13 PBV of 2.9x) the stock is trading at vis-à-vis it mid-sized peers.
Blue chips on Bursa Malaysia extended correction for a second week, led by telcos that dragged the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) down to a five-week low, as investors stayed sidelined amid caution ahead of the US presidential election and China’s once-a-decade leadership transition. The slump on Wall Street sparked by investors switching focus to the impending fiscal cliff and Europe’s debt crisis further dampened sentiment.
Week-on-week, the FBM KLCI lost another 15.05 points, or 0.91% to 1,641.08, with DIGI.com (-30sen), Axiata (-22sen), Public Bank (-28sen) andMaxis (-25sen) representing almost all of the index’s fall. Average daily traded volume and value shrank to 1.07 billion shares and RM1.52billion, compared with the 1.41 billion shares and RM1.52 billion average the previous week.
Maybank to the Rescue
The benchmark index could be due for a mild technical rebound in this holidays shortened three-day trading week after losing 31 points in the last two weeks. Maybank (Buy, TP:RM11.30) could contribute to the revival after reporting a stronger-than-expected third quarter 2012 earnings that grew 13% year-on-year toRM1.5 billion on a strong double digit growth in net interest income. Its International Banking’s performance had a pivotal role to
play in this good performance as its profit before tax surged by 52.2% YoY to RM690.9 million to make up for 4.1% of the group’s overall PBT.
For the nine-month period profits rose 18.2% to RM4.3 billion or 81% of full year consensus forecast as the Group’s net interest income and Islamic banking income for the period rose 16.7% or by RM1.1 billion to RM8 billion. This was largely due to the 12.2% year-on-year growth in the Group’s net loans and advances. Much of the RM801 million improvement in the first nine months profit before tax of RM5.9 billion came from its international
operations that made up 74% of the incremental PBT and 29% of the overall group’s PBT.
With entrenched earnings growth and enhanced capital position after a private placement of 412mn shares last month, Maybank is likely to maintain its attractive dividend payouts for the 2012 and 2013 that would lead to a good dividend yield of around 6.7%. This along with a capital upside of about 24% should be appealing for investors to nibble its shares for exposure.
We do not expect the remaining banks such as CIMB, Hong Leong and RHB Cap which are due to announce results, to yield any surprises. Going into 2013, we maintain our Neutral view on the banking sector – mostly due to pricier valuations for stocks such as CIMB, Alliance Financial Group (AFG), Public Bank and Hong Leong Bank (HLBB) which have all seen sharp share price appreciation in the past year. However, we still do foresee some earnings growth opportunities for the sector stemming from an increase in corporate activities due to ETP along with modest loans growth of 10.3% for 2013. This is premised on a backdrop of stable asset quality and our outlook of reasonable growth in economic activities locally and in the region. Nevertheless,we also note some downside earnings and dividend risks, moving forward. These include further margin compression due to pricing competition coupled with a rise in funding costs asbanks scramble to comply with Basel 3’s liquidity requirements. .In terms of stock picks, we have BUY calls on Public Bank, Maybank, Affin and RHB Cap. Hold AMMB, CIMB and AFG. Elsewhere, we maintain our Sell call on HLBB due to the huge premium (or FY13 PBV of 2.9x) the stock is trading at vis-à-vis it mid-sized peers.
by TA Securities