- Election results in-line and positive for the sector. The election results have been announced and are in-line with expectations in terms of the banking sector.

- Likely to see less cautious stance by borrowers. The industry’s recent leading indicators had been soft, with declines in both the loans applied and loans approved. At our recent company visits, the indications were SME borrowers had been largely cautious and had destocked inventories or held back investment activities ahead of the general election. As for the larger corporate and ETP-related loans, the plans for disbursements are only towards May and June. Retail loans are generally stable although there were also overtones of caution in the non-residential mortgage market, as seen in the latest industry statistics.

- Stronger loans growth ahead. We expect a less cautious stance post the general election, and expect loans growth to pick up. Our loans growth forecast for the sector from a bottom-up basis is unchanged at 8.6% for 2013.

- Expect more investment banking pipeline to come on-stream from May 2013. We also expect more investment banking pipeline to come on-stream from May 2013. Based on our recent company visit to CIMB, the company alluded to a decent-looking investment banking pipeline for FY13, which is expected to be propped up by numerous smaller-sized deals that would make up for the lack of mega-IPO deals seen in 2012. Maybank indicated that the investment banking pipeline remains quite good. RHB Cap hinted at having secured about two-thirds of the mandates that are being worked on, with the number of mandates secured so looking far better than the same time last year on its merged RHB-OSK platform. Thus, non-interest income outlook is expected to be healthy.

- Benign loan loss provisions expected to underpin 1Q results. We expect a generally quiet 1Q, due to slower loans growth, but earnings are expected to be underpinned by continuous benign loan loss provisions. Most banks have indicated stable asset quality trend.

- Our BUYS are CIMB, RHB Cap and AFG. Post-election, we expect CIMB to attract trading interest as concerns dissipate. We also like AFG for a possibly strong pick-up in SME loans. Our buys are now AFG, CIMB and RHB Cap, with our top picks being AFG and CIMB.

Source: AmeSecurities