Banks cutting loan growth projection
■ Gross impaired loan ratio remained stable at 1.65% in Sep-Oct 16.
■ Loan growth recovered from 4.2% yoy in Sep 16 to 4.5% yoy in Oct 16.
■ We lower our projected loan growth for 2016 from 6-7% to 5.6% and introduce our
loan growth forecast of 5-6% for 2017.
■ Loan application rebounded strongly with a mom growth of 14.4% in Oct 16.
■ Stay Overweight on banks given the attractive valuations and better prospects in
2017.
■ Gross impaired loan ratio remained stable at 1.65% in Sep-Oct 16. ■ Loan growth recovered from 4.2% yoy in Sep 16 to 4.5% yoy in Oct 16.
■ We lower our projected loan growth for 2016 from 6-7% to 5.6% and introduce our
loan growth forecast of 5-6% for 2017.
■ Loan application rebounded strongly with a mom growth of 14.4% in Oct 16.
■ Stay Overweight on banks given the attractive valuations and better prospects in
2017.
Preference for the sector.
Stock-wise, we prefer the following banks for exposure to the sector:
■ BIMB Holdings – BIMB Holdings is our top pick among Malaysian banks as it will be the only beneficiary of EPF’s Simpanan Shariah, to be implemented in 2017 and would increase the inflow of Islamic funds. BIMB is the only listed pure Islamic bank in Malaysia.
The qualities of the stock are reflected by: (1) its unrivalled loan growth, (2) one of the best ROEs in the sector, (3) strong asset quality – one of the lowest gross impaired loan ratios among local banks, and (4) swift expansion of non-fund based income, primarily theTakaful income.
■ RHB Bank – RHB Bank is an Add in our books given the potential re-rating catalysts of: (1) benefits from the implementation of its IGNITE 17 transformation programme, (2) attractive valuation, (3) cost savings from its career transition scheme materialising from FY16 onwards, (4) gains in market share by its investment banking unit, and (5) the drive for regional expansion in the longer term.
■ Maybank – We like Maybank for its size and well-diversified business portfolio. In Malaysia, it is ranked among the top three in almost all the key market segments, including trade finance, credit cards, investment banking and Islamic banking. Its geographical diversification, with exposure to underpenetrated markets, such as Indonesia and the Philippines, also helps to support its earnings growth in the longer term. The potential re-rating catalysts for the stock are: (1) benefits from the regionalisation of its businesses in various countries, (2) the recovery in earnings contribution from its Indonesia operations, and (3) potential regional expansion of its Islamic banking and insurance businesses in the longer term.
■ AMMB Holdings – We reiterate our Add recommendation on AMMB Holdings as we expect EPS growth to turn around from a 25.8% decline in FY3/16 to an increase of 3.3% in FY3/17. Other potential re-rating catalysts for the stock include: (1) attractive valuations (CY17F P/E of 9x and P/BV of 0.8x), and (2) enticing dividend yields of 4-5% in CY17F.
■ Affin Holdings – We still rate Affin an Add given its attractive valuations with CY17F P/E of 7.7x and P/BV of 0.5x. In addition, we are positive on the implementation of its Affinity transformation programme, which would yield positive results in the areas of fee income generation, operating efficiency as well as margins.
Management also has aggressive targets of increasing the bank’s ROE by 2-3% pts by 2020 and doubling the bank’s 2015 operating revenue by 2020. This reflects management’s commitments to significantly improve the financial performance of Affin Bank and also its positive views on the impact from the transformation programme.
source: CIMB Research – 01/12/16
