Investment Highlights

• Banks’ 3M21 core calendarised earnings growth after stripping out unwinding of modification losses and CIMB’s revaluation gains of RM1.15bil from the deconsolidation of Touch ‘n Go Digital rose by 23.0% YoY. The improvement was supported by higher total income. Net interest income (NII) was stronger, underpinned by a pick-up in the pace of loan growth and improved interest margins (NIM). Besides, underlying non-interest income (NOII) was higher YoY. 1Q21 saw most banks continuing to conservatively book in provisions in the form of management overlay. Nevertheless, on a QoQ basis, provisions for loan losses were significantly lower by 38.0%. The results of banks were mostly within expectations. Earnings of Maybank, Public Bank, RHB Bank, Hong Leong Bank, CIMB and BIMB Holdings were within our expectations. Meanwhile, Alliance Bank’s core earnings were above our forecast largely due to stronger-than-anticipated NOII.
• Accelerated loan growth in 1Q21 for most banks. Maybank reported a pick-up in loan growth from stronger expansion of consumer loans in Malaysia and Singapore. Meanwhile, 1Q21 saw CIMB reporting a marginally positive loan growth supported by an expansion of financing in Malaysia while loans in Indonesia and Thailand contracted due to a reduction in commercial loans. Public Bank, RHB and Hong Leong Bank reported a strong domestic loan growth of 6.1% YoY, 6.0% YoY and 7.4% YoY respectively, ahead of the industry’s 3.9% YoY growth.
• The sector's underlying net interest margin (NIM) expanded by 9bps QoQ or 10bps YoY to 2.29% in 1Q21, supported by the continued reprising of liabilities post-OPR cuts and the optimisation of deposit mix which lowered funding cost. The robust CASA growth for banks of 6.2% QoQ or 23.5% YoY contributed to the decrease in banks’ cost of funds. CASA ratio (based on our stock universe) rose to 36.7% in 1Q21 vs. 31.6% in 1Q20. We maintain our OPR projection for 2021 of 1.75%.
• Underlying sector’s NOII rose by 12.6% YoY in 1Q21, driven largely by CIMB’s higher wealth management income under its consumer banking business and stronger trading income of its wholesale banking. 1Q21 saw a mixed trend for investment and trading income. Maybank and RHB reported lower treasury income YoY due to a decline in disposal gains of securities and the marked-to-market impact on securities/derivatives. In contrast, CIMB recorded stronger trading income under its wholesale banking YoY on the improved performance in Jan and Feb 2021 compared to the weaker 1Q20. Public Bank posted stronger NOII YoY in 1Q21 from higher unit trust, brokerage, fees and commission income. 1Q21 also saw higher fee, commission and service charges YoY for Maybank, CIMB and RHB Bank

Source: AmInvest Research - 8 Jun 2021