Investment Highlights

• Industry loan growth picked up pace to 6.4% YoY in June 2024 from 5.8% YoY in May 2024, driven by stronger pace from working capital loans. YTD loans grew by 5% annualised. Hence, we are revising our loan growth expectation for the sector in 2024 slightly upwards to 5%-6% from 4-5% earlier. Household loan growth eased marginally to 6.4% YoY, attributed largely to a slower pace from loans for purchase of passenger vehicles. Meanwhile, growth in non-household loans in June 2024 climbed to 6.4% YoY vs. 4.8% YoY in May 2024, contributed by a stronger momentum in working capital loans.

• Slower growth in loan applications but pace of financing approvals gained traction in June 2024. Growth of both household and non-household loan applications were lower in June 2024 compared to the preceding month.

• Deposit growth and CASA ratio were sustained in June 2024. Deposits grew 4.9% YoY in June 2024, the same pace as May 2024. LD ratio for the sector inched higher to 86.8% in June 2024 vs. 86.1% in May 2024. The sector’s loan-to-fund ratio/loan-to-fund and equity ratio increased slightly to 82.8%/72.1% in June 2024. Sector LCR increased to 155% in June 2024 from 150% in May 2024. Growth in CASA moderated to 6.5% YoY in June 2024 compared to 7.4% YoY in May 2024. Nevertheless, the banking system’s CASA ratio was sustained at 29.8% owing to a lower mix of FDs.

• June 2024 saw lower impaired loans and provisions for the sector. Asset quality has been holding up with industry’s GIL/NIL ratio stable at 1.6%/1%. The industry’s outstanding impaired loans fell by 1.2% MoM or RM407mil in June 2024. The decrease was driven largely by lower impairments of loans to the manufacturing, utilities, wholesale & retail trade, finance, insurance, business activities and household sectors. Total provisions slipped 0.2% MoM or RM49mil in June 2024. The sector’s loan loss cover (LLC) improved to 91.7% in June 2024 (May 2024: 90.8%) due to lower impaired loan balances.

• The sector's CET 1/Tier 1/Total capital ratios were slightly lower at 14.3%/14.8%/17.9% in June 2024. This has been contributed by an increase in total risk-weighted assets.

• Maintain NEUTRAL on the sector and continue to be selective on banking stocks with BUYs on CIMB (FV: RM8.00/share), Public Bank (FV: RM5.00/share), Hong Leong Bank (FV: RM24.10/share) and Alliance Bank (FV: RM4.30/share). On larger cap banks, we like CIMB and Public Bank which are higher in liquidity. We continue to see stronger earnings momentum for CIMB while Public Bank is a laggard stock with appealing valuation. Our fair value on Public Bank has been raised to RM5.00/share from RM4.50/share after rolling forward our valuation to FY25F, pegging the stock to 1.6x P/BV supported by ROE of 12.1%. Also, we have BUYs on Hong Leong and Alliance Bank due to undemanding valuations. Hong Leong/Alliance Bank is trading at an attractive FY25F P/BV of 1x/0.9x.

Source: AmInvest Research - 1 Aug 2024