A laggard. We are OVERWEIGHT on the banking sector as we find its risk-reward profile is skewed to the upside, backed by interest rate upcycle and strong bank stats. Recall, Jul-22’s loan growth gained further traction to 5.9% YoY, with loan application (leading indicator) jumping 79.8% YoY. Also, interest spread expanded 8bps, with the average lending rate spiking up 30bps MoM while the 3-month board FD rate increased 22bps, suggesting scope for NIM expansion. In our opinion, the combination of robust profit growth and still undemanding valuation will be the impetus to drive banks going forward.
While most banks performed fairly well YTD, BIMB’s stock performance was lacklustre compared to the peers (YTD: -11.6% vs KLFIN YTD: 5.9%), as its profit was partially weighed down by sluggish treasury and market showing, which dragged down the group’s non-interest income. That said, this is seen to abate, considering forward looking views of the market, which would largely price-in interest hike events; the current 10-Y MGS yield of 4.07%, marks a 167bps recovery from 2020’s bottom vs total OPR cut of 125bps during the pandemic period. Besides, we noticed that the spread between 10Y MGS yield and OPR has widened above pre-pandemic levels, further strengthening our thesis that downside from MGS yield spikes is minimal. Hence, BIMB’s earnings could potentially bounce back to the RM130-150m/quarter run-rate level from 3Q22 onwards (vs current average of RM100m/quarter), which would help to fuel and support upward share price momentum.
Undemanding valuation. In our view, the laggard share price showing in BIMB has posted an opportunity for investors to accumulate and ride on the interest rate upcycle. At RM2.64, BIMB is trading at an undemanding 0.79x FY23 P/B (28% and 23% discount against 5-year average of 1.1x and KLFIN 1.03x FY23 P/B, respectively) coupled with a decent dividend yield of 4.3%. Such depressed level (-2SD), we believe, deserves a re-rating as the structural long-term growth prospects remain bright and intact.
Pending resistance breakout. Technically, stiff resistance is pegged at RM2.71 level. A successful breakout above the said hurdle will spur the price toward RM2.78-2.90- 2.97 levels. Cut lost at RM2.47.
Source: Hong Leong Investment Bank Research - 15 Sept 2022
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