Given our view that
responsible finance will continue to promote a healthier albeit slower
household lending portfolio growth, the momentum of the system loan growth will
hence likely be lower for 2013. Our base case estimate for the system loan
growth for 2013 is in the range of 9-10%, 1-2% lower than 2012. Together with
the ongoing margin headwind, there are limited opportunities to drive the earnings
growth for banks materially beyond our current expectation of a high single-digit
to low teens growth only. In addition, with the already mid-cycle valuation, we
believe a valuation multiple expansion is also unlikely. Hence, we are
increasingly looking to thematic plays within the banking sector to search for outperformers
in 2013.
More moderate but
more sustainable. Bank Negara Malaysia (BNM) is adopting a careful approach
to its overall lending policy in the system, preferring selective growth rather
than a broad-based tightening, which would still promote a healthy lending
practice in the system. We expect loans growth in the consumer segment to
moderate as the recent Responsible Finance rules relating to downpayments are
still affecting demand, such as the 70% LTV rules for third home properties,
with is aimed at curbing speculative activities on high-end properties, and
also measures such as assessing borrowing capabilities based on net incomes (after
tax) to tackle the lower-income group household debts. Nonetheless, the overall
2013 lending growth rate should hit our target of 9%-10%. This is because the
current monetary policy and the underlying liquidity condition, with excess
liquidity and capacity in the system (a L/D ratio of 79%), should continue to
support both investment and consumption demand growth (mostly
ETP-related).
Searching for the next growth driver. As such, the
“re-balancing” of the local banking system lending portfolio will continue to
occur at a measured pace, although we do think that this will continue to bring
changes to the banking industry landscape in the next two years, which has been
consumer-driven since 2005. In this
regard, there could be a shift from consumer growth to that of corporate
and business growth. This is because of the regulatory intervention on consumer
lending requirements in contrast to corporate lending growth, which is not
facing any similar direct pressure given the continued growth of ETP-related projects.
In the absence of robust growth in the consumer sub-segments, i.e. mortgages, hire-purchase
and credit cards, banks have been supporting the financing of ETP-related infrastructure
projects – this is reflected most recently in the higher corporate lending
growth of 12.1% vs. consumer’s 11.9%.
NIM compression is a
norm. A common trend that is unlikely to change in 2013 is the downside
risk of NIM asserting itself despite the consistent loan growth in the system.
Over the last 12 months, we have seen greater competitions for deposit funding
and in the household credit segment. If this proves temporary, we see little
downside risk to NIM. However, if this trend is sustained, the lower asset
yields could be a major drag on the net interest income and hence EPS growth.
In fact, NIM compression headwind is not
new to Malaysian banks.
Asset quality remains strong. We think that ultimately,
impaired assets will be reduced by the strong lending quality and steady loan
growth in 2013. Already in 2012, the impairment ratio has fallen 1.54% with a
superb 97% loss coverage. There is also a continuing more benign outlook for
credit costs with a few big banks guiding for recoveries here.
Valuations seem fair.
The major banks’ valuations are currently trading near the average of their
historical valuation range, which are considered “fair”. Hence, this will
somewhat cap the absolute share price performance of banking stocks apart from
the pressure weighed on them by the uncertain external economic outlook. With
earnings growth in the range of high single-digit to low teens and together
with the already mid-cycle valuation, we believe that valuation multiple
expansions are unlikely in the absent of price catalyst. As such, we are increasingly
looking to thematic plays within the banking sector in searching for the outperformers
for 2013.
Domestically Driven. We think the resilient credit demand on the
bread-and-butter loan segment is still being underappreciated. The demand for
this segment has been strong and this has helped insulate the economy from the
pressure of lower external demands.
Public Bank
(“PBBANK”) meanwhile has continued to maintain its dominant market share by
taking a calculated risk approach and having a quality franchise as well as
operating efficiency with a cost-to-income ratio of just 31.8% in 1Q12 vs. the
industry’s 46%. Its valuation is high at 3.0x book value but we think this is
justified given its 25% ROE, high liquidity position (87% LDR), strong credit
quality (117% NPL coverage) and improved CAR to slightly above 8%. That said,
its NIMs did fall 10-12bps sequentially on re-pricing given the competitive pressure on lending rates. We
rate PBBANK as an OUTPERFORM with a higher TP of RM16.80 based on 3.0x its FY13
BV as the market is likely to re-rate it on better capital ratio. BIMB Holdings’ (“BIMB”) management
meanwhile is expected to achieve a higher financing growth target of 25% YoY by
end-FY12 with a better Financing-to-Deposit ratio of 60%. Its likely higher
growth rate than the industry’s 13% financing growth rate will mainly be
contributed by ETP-related projects. We
believe its high growth is highly repeatable in FY13 as the group has a a
decent and liquid balance sheet (reasonable RWCR and low L/D ratio) although
its ROA and ROE is still sub-par (in part due to its low leverage level). At the same time, we also still expect Bank
Islam to deliver a faster balance sheet growth from corporate lending and
achieve a better asset quality similar to its peers in 2-3 years time. In
addition, we also do not discount the possibility of potential corporate
actions by management here ahead to unlock the value of the group. We are
keeping our target price of RM3.60 unchanged based on 1.7x on its FY13 BV of RM2.14.
Bright Spots for
Responsible Finance. More
responsible policy measures will reduce systematic risks and thus should benefit
banks’ asset quality. We reckon that the domestic banking system should
continue to see many years of balance sheet enhancement as argued by us above.
The increased trust in banks’ asset quality and their continuous improvement in
the same are likely to support banks’ earnings growth in the near future with a
lower credit cost and a surprise in their asset recoveries rate.
Looking at Affin
Holdings (“AFFIN”), we note that its potentially higher credit risks have already been priced in by the existing
discount in its valuations. With its
strong result performance, which was driven by impairment write-backs, we
believe its current valuation at 0.8x FY13 P/BV with an estimated ROE of 10.3%
is undemanding in our view and offers a favourable risk-to-reward proposition.
There is room for its trading multiple to improve on its M&A news. Its
negotiation with DRB Hicom for a potential acquisition stake in Bank Muamalat (“BMMB”)
is still ongoing. This is a good move given that the acquisition of BMMB will
be the key to the group becoming a bigger player in Islamic Banking and will
widen AFFIN’s branch network with an additional 58 branches from BMMB should
the acquisition go through. In addition, AFFIN will also be able to tap into
BMMB’s existing business collaboration with DRB-Hicom, in particularly with Pos Malaysia and
Proton. We maintain our TP at RM4.40 for
AFFIN based on a targeted 1.0x its FY13 BV.
The ASEAN Aspiration. The top two GLC banks namely Malayan Banking (“MAYBANK”) and CIMB
Holdings (“CIMB”) share the aim of gaining domestic leadership as well as also
aggressively pursuing their ASEAN market expansions by inorganic growth
strategies to have a better geographic coverage and client interaction to
derive synergies. Both are now the biggest proxies to ride the ASEAN region
resurgence and have started to reap the fruits from their plans and seeing synergies
over their respective group integrations. We expect the region’s economic
growth to remain resilient over the next 2-3 years.
CIMB’s management
has seen a moderate balance sheet expansion in its 2H12 results, which was
mainly due to the weak forex translation of Indonesian Rupiah. Its loan growth
was below the guidance of a +16% growth rate for 2012. However, its loan
demands continued to be driven by local credit demands, reflecting a more
benign outlook for credit quality alongside the improved loan pricing. In addition, its integration programme “CIMB
2.0” is still ongoing and it is also leveraging on its IB strength to get a
higher share of the business, both in loans and IB deals in the APAC, which
should further add to its revenue growth year in 2013 in our view. We
continue to rate CIMB as an OUTPERFORM with a TP of RM8.20. MAYBANK is one of the key beneficiaries
from the ETP projects rollout with its corporate loans growth likely to see an
impressive 1H2013. Management said it continues to see a slightly above
industry loan growth that will be driven by stronger loan demand from GLC-related
companies on ETP-related projects along with the Oil & Gas sector as well
as from Sarawak’s SCORE projects. As such,
we do not discount the possibility of the group delivering a FY13 loan growth
target in the range of 11-13%. The group aims to be a leading wholesale bank in
ASEAN by 2015. Areas of opportunities in
the region include driving more cross-border deals, growing its Islamic banking
business and seeking more treasury products businesses (hedging, currency and
swap). This should result in its non-interest income growing over the medium
term. We rate MAYBANK as an OUTPERFORM with a TP of RM10.40.
The Huge Laggard. Meanwhile,
RHB Capital’s (“RHBCAP”) share price has been an underperformer in 2012. We
attribute this to the fears of a dilution in its earnings per share following
the OSKIB and RHBIB merger. RHBCAP’s share price performance has lagged that of
its peers substantially and the stock is now trading at the lowest point of its
historical PER band as well as its P/BV band.
Its FY13 P/BV is now at a 33% discount to its historical average of
1.8x. We see its performance possibly doing a catch-up in 2013. RHBCAP has
clearly demonstrated a track record of delivering quality and consistency in
its ROE, and as per management guidance, we are looking for a ROE in the range
of 13-14% post its merger. In our view, RHBCAP has the ability to generate
synergies from the merger and is likely to immediately eye cross-border deals
as a new business growth strategy. We like the company’s undemanding valuation
and its cross-border deal growth driver, which will lead to gains in its
ROE. We rate RHBCAP as an OUTPERFORM with a TP of RM8.30.
Source: Kenanga
No comments:
Post a Comment