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Author: kltrader   |   Latest post: Tue, 10 Dec 2019, 10:08 AM

 

CIMB Is MQ Research’s Top Pick

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Macquarie Equities Research (MQ Research) summarised Bank Negara’s report on the Malaysian banking data for September 2019. Among the key highlights is loans growth continued to decelerate, with corporate loan growth decelerating quicker than retail loan growth. MQ Research maintains CIMB as its top banking stock pick.

Event

  • September system loans growth continued to decelerate to a tepid +3.8% year-on-year (y-o-y) with a sharp decline in applications, -16% month-on-month (m-o-m). Corporate loan growth (+2.7% y-o-y) continued to decelerate quicker than retail loan growth (+4.6% (y-o-y)) (Fig 3). As expected, average lending rates (ALR) continued to decline following the May overnight policy rate (OPR) cuts.

  • Meanwhile, divergence between 12-month (rising) and 3-month (falling) fixed deposits (FD) rates continued. Notably, current account and savings account (CASA) growth was robust rising +6.5% y-o-y (FD growth was +5.8%), which should help blunt the ALR drag. Banking system liquidity remains ample with a loan-to-deposit ratio at 88.5% and liquidity coverage ratio at 144%. MQ Research continues to prefer the heavily discounted CIMB as its top pick, given the expectation of a rebound in corporate lending combined with asset quality remaining contained in FY20.

Impact

  • Business lending remains subdued. Manufacturing applications (7% of total applications) saw a -37% y-o-y drop, real estate and construction applications +6% y-o-y. Lending applications by households also slipped -1% y-o-y. On the retail front, auto financing contracted at a quicker pace (-1.7%; August: -1.6%), while housing loan growth inched up slightly to +7.2% y-o-y (Aug: +7.1% y-o-y).
  • ALR continued to slide, down another 7bps m-o-m to 4.76% as the hit from the OPR cut in May continues to be felt. Year-to-date (YTD), ALR is down 26bps. However, the spread to savings deposit rate has fallen by a smaller quantum, down 6bps m-o-m to 3.77%; -18bps ytd. Considering the weak loan demand and the ample liquidity in the banking system, MQ Research believes the majority-consensus assumption of a November rate cut could be less likely than most expect. In a no-cut scenario, MQ Research anticipates +2.8%/+2.5%/+1.4% upside to Public/Maybank/CIMB’s FY20 net profit.
  • GIL continued to creep upwards at 1.61%, but asset quality continues to remain at healthy levels. This time housing non-performing loans (NPL) rose to 1.2% (Aug: 1.1%) while working capital NPL’s eased to 2.2% (Aug: 2.3%). Meanwhile, NPL coverage ratios slid to 88.8%, down from 98.3% a year earlier. Amid the decelerating growth drivers, the common equity tier 1 (CET1) ratio continues to hover near record high levels at 13.8% - supportive of higher dividend payouts. Dividend reinvestment plan (DRP) rollbacks going forward would be a potential catalyst for CIMB.

Outlook

As per MQ Research’s sector report, MQ Research has a preference for corporate banks. MQ Research expects corporate loan growth to bottom in 2H19 and rebound in 2020, while retail loan growth to continue to trend downwards and stagnate. CIMB is MQ Research’s top pick among the big 3, and MQ Research recommends switching from Public Bank into Maybank. Credit costs still contained.

Source: Macquarie Research - 1 Nov 2019

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