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Overweight call on Malaysian banking stocks [03-04-2013]  
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Nomura Equity Research has upgraded Malaysian banking stocks to “overweight” due to their underperformance relative to other South-East Asian banks as well as the likely removal of political overhang following the general election.

The research house, which has Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd as its large-cap picks for their strong loan growth prospects, said concerns that the election would trigger a knee-jerk reaction were “overdone”.

It also expected a re-rating of these stocks once the overhang was lifted.

Local brokerage Kenanga Research, meanwhile, said in a report yesterday it also had an “overweight” call on the banking sector, although it noted that all indications are pointing toward weaker loan growth this year.

Citing the latest loan numbers for February, it said domestic loans grew a “modest” 11.4% compared with the same period last year, and higher than January’s 11.3%, amid a shorter working month.

This was mainly buoyed by stronger household loans and stabilising business loans.

However, it added that loan application, approval and disbursement all registered negative growth last month, dipping 9.4%, 1.2% and 3.5% year-on-year, respectively.

Deposits were also softer, gaining only 7.9%, causing the industry’s loan-deposit ratio to inch up to 78.5% at end-February from 78.2% in January.

“Given our view that the Responsible Finance policy of the central bank will promote a healthier household lending portfolio, the momentum of loan growth will be lower in 2012-2013.

“Hence, our base case for the system loan growth is maintained broadly in the high single digits of around 9%-10%.

“Together with the ongoing margin squeeze headwinds and an already low provisioning number, there are limited opportunities to drive the earnings growth for banks from here materially beyond our current expectation of a high single digit growth only.

“With earnings growth in the range of high single-digit to low teens, together with the already stretched valuations, we believe that a rise in the valuation multiple is also unlikely for the sector.

“We are retaining our ‘overweight’ call on the sector due to the still ample liquidity in the system and healthy balance sheet,” Kenanga Research said.

The brokerage added that it favoured AMMB Holdings Bhd as a “laggard” play for its undemanding valuations, Maybank as its defensive pick and Affin Holdings Bhd as its “dark horse” play.

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