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2013 STRATEGY - BANKS

kiasutrader
Publish date: Mon, 24 Dec 2012, 10:20 AM

Moderate  but  stable  growth  outlook. We believe the sector will continue to be resilient with upside  surprises  from  the  multiplier  effect  from  the  slew  of  Economic  Transformation Programme (ETP) projects. Our Overweight call on the sector is underpinned by the following factors: i) banks will continue to benefit from loans disbursed to ETP-related initiatives, ii) non-interest  income  upsides  fromvarious  equity  and  bond  fund raising  exercises  to  help  fund  the slew  of  ETP  projects,  iii)  strong  capitalization  and  asset  quality  staying  benign,  providing earnings  visibility  and  a  stable  sector  outlook,  and  v)  inexpensive  valuations  supported  by  a decent projected 8%-10% earnings growth for 2013.

Loans growth focuses on business segments. Looking at the slowdown in loan applications and  approvals,  we  believe  that  loans  growth  may  moderate  to  9%  in  2013  vs  our  current projected 10%-11% growth for 2012. Business loans will continue to be supported by the next implementation phases of the mega-size ETP projects, with the multiplier effect trickling down to the SME segment, providing the next uplift in business loan demand. Meanwhile, despite the moderating  outlook  on  the  momentum  of  household  loans  growth,  the  relatively  low  interest rate  environment  and  stable  domestic  consumer  outlook  will  provide  some  form  of  demand support for 2013.

Non-interest  income  boost.  We  view  2013  as  the  year  that  selected  banks  will  see  a  fee income ratio upside, which is positive for income diversification. Some drivers are: i) more fund-raising or project financing initiatives, ii) the ample injection of capital market activity in the form of  new  public  offerings,  iii)  potential  tax  incentives  for  business  trust  listings  may  spur opportunities for banks with experience relating to real estate investment trusts (REITs), as well as iv) potential incentives for income arising from debt capital markets, with agricultural-based or commodity-related corporations expected to come out with sukuk issuances.

Not  expecting  compromise  in  asset  quality.  The  banks  in  the  sector  have  generally  seen major improvements in capitalization strength and asset quality despite the full adoption of the MFRS-139 and deteriorating macroeconomic environment.

Maintain  OVERWEIGHT.  While  the  sector's  aggregate  earnings  is  expected  to  grow  at  a relatively  moderate  8%-10%  pace  in  2013,  a  benign  non-performing  loan  (NPL)  outlook, coupled with a potential upside surprise from the stronger and higher-margin SME loans from the trickle-down effect of the various ETP projects, could provide an unexpected positive to the sector's 2013 outlook. We prefer banks that possess distribution strength as well as an overall stronger  exposure  to  ETP-related  corporate  loans  and  sukuk. We  are maintaining  our  call  on the sector as OVERWEIGHT. Our top picks remains Public Bank (BUY, FV: RM17.00 - 2.82x FY13 PBV, 22.3% ROE), Maybank (BUY, FV: RM10.15 - 1.96x FY13 PBV, 14.0% ROE), and CIMB (TRADING BUY, FV: RM8.70 - 2.14x FY13 P/BV, 16.6% ROE)
Source: OSK
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