Moderate but stable growth outlook. We believe the sector will continue to be resilient with upside surprises from the multiplier effect from the slew of Economic Transformation Programme (ETP) projects. Our Overweight call on the sector is underpinned by the following factors: i) banks will continue to benefit from loans disbursed to ETP-related initiatives, ii) non-interest income upsides fromvarious equity and bond fund raising exercises to help fund the slew of ETP projects, iii) strong capitalization and asset quality staying benign, providing earnings visibility and a stable sector outlook, and v) inexpensive valuations supported by a decent projected 8%-10% earnings growth for 2013.
Loans growth focuses on business segments. Looking at the slowdown in loan applications and approvals, we believe that loans growth may moderate to 9% in 2013 vs our current projected 10%-11% growth for 2012. Business loans will continue to be supported by the next implementation phases of the mega-size ETP projects, with the multiplier effect trickling down to the SME segment, providing the next uplift in business loan demand. Meanwhile, despite the moderating outlook on the momentum of household loans growth, the relatively low interest rate environment and stable domestic consumer outlook will provide some form of demand support for 2013.
Non-interest income boost. We view 2013 as the year that selected banks will see a fee income ratio upside, which is positive for income diversification. Some drivers are: i) more fund-raising or project financing initiatives, ii) the ample injection of capital market activity in the form of new public offerings, iii) potential tax incentives for business trust listings may spur opportunities for banks with experience relating to real estate investment trusts (REITs), as well as iv) potential incentives for income arising from debt capital markets, with agricultural-based or commodity-related corporations expected to come out with sukuk issuances.
Not expecting compromise in asset quality. The banks in the sector have generally seen major improvements in capitalization strength and asset quality despite the full adoption of the MFRS-139 and deteriorating macroeconomic environment.
Maintain OVERWEIGHT. While the sector’s aggregate earnings is expected to grow at a relatively moderate 8%-10% pace in 2013, a benign non-performing loan (NPL) outlook, coupled with a potential upside surprise from the stronger and higher-margin SME loans from the trickle-down effect of the various ETP projects, could provide an unexpected positive to the sector’s 2013 outlook. We prefer banks that possess distribution strength as well as an overall stronger exposure to ETP-related corporate loans and sukuk. We are maintaining our call on the sector as OVERWEIGHT. Our top picks remains Public Bank (BUY, FV: RM17.00 - 2.82x FY13 PBV, 22.3% ROE), Maybank (BUY, FV: RM10.15 – 1.96x FY13 PBV, 14.0% ROE), and CIMB (TRADING BUY, FV: RM8.70 – 2.14x FY13 P/BV, 16.6% ROE)
Loans growth focuses on business segments. Looking at the slowdown in loan applications and approvals, we believe that loans growth may moderate to 9% in 2013 vs our current projected 10%-11% growth for 2012. Business loans will continue to be supported by the next implementation phases of the mega-size ETP projects, with the multiplier effect trickling down to the SME segment, providing the next uplift in business loan demand. Meanwhile, despite the moderating outlook on the momentum of household loans growth, the relatively low interest rate environment and stable domestic consumer outlook will provide some form of demand support for 2013.
Non-interest income boost. We view 2013 as the year that selected banks will see a fee income ratio upside, which is positive for income diversification. Some drivers are: i) more fund-raising or project financing initiatives, ii) the ample injection of capital market activity in the form of new public offerings, iii) potential tax incentives for business trust listings may spur opportunities for banks with experience relating to real estate investment trusts (REITs), as well as iv) potential incentives for income arising from debt capital markets, with agricultural-based or commodity-related corporations expected to come out with sukuk issuances.
Not expecting compromise in asset quality. The banks in the sector have generally seen major improvements in capitalization strength and asset quality despite the full adoption of the MFRS-139 and deteriorating macroeconomic environment.
Maintain OVERWEIGHT. While the sector’s aggregate earnings is expected to grow at a relatively moderate 8%-10% pace in 2013, a benign non-performing loan (NPL) outlook, coupled with a potential upside surprise from the stronger and higher-margin SME loans from the trickle-down effect of the various ETP projects, could provide an unexpected positive to the sector’s 2013 outlook. We prefer banks that possess distribution strength as well as an overall stronger exposure to ETP-related corporate loans and sukuk. We are maintaining our call on the sector as OVERWEIGHT. Our top picks remains Public Bank (BUY, FV: RM17.00 - 2.82x FY13 PBV, 22.3% ROE), Maybank (BUY, FV: RM10.15 – 1.96x FY13 PBV, 14.0% ROE), and CIMB (TRADING BUY, FV: RM8.70 – 2.14x FY13 P/BV, 16.6% ROE)
Source: OSK
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