We maintain our OVERWEIGHT call on the sector.An overview on the sector reflects mostly positive tidings ahead.Aside from better loans growth ensuing from economic recovery, looser provisioning measures will provide somerelief,having stood prudently amidst the many MCOs in the last two years. We do not discount certain banks writing back excess allowances in the near term.However,the2022 one-off prosperity tax will hamper earnings growth this year. Additionally, we anticipate NIMs to normalise until OPR is raised (we expect two 25 bps hikes in 2HCY22). That said, sentiment for the sector is lifted by the former as it rings closelyin tune to the US Fed’s recent hike. We introduce a sector-wide rerating of our calls with HLBANK now joining our list ofoutperformers. For 2QCY22, we chose top picks that may present added propositions besides having cheap valuations. We continue to like RHBBANK (OP; TP: RM6.95), this time focusing on itssizeablefloating rate loans foundation tocapitalise on the eventual rate hike. WeinductHLBANK (OP; TP: RM22.70)to the listas amidst many present tailwinds, the stock has the most improved GIL ratio which could cushion against any unexpected shifts in asset quality (to some extent, from the lapse of repayment assistance programs).
Mixed but solid close to CY21 results. 4QCY21sector earnings were strong with all things considered, as we saw four banks delivering better-than-expected numbers (ABMB, AFFIN, AMBANK, HLBANK)tapping into the economic recovery. However, we saw some misses from BIMB, CIMB and MBSB mainly due to impairment allowances still being hefty for their respective quarters. The other large cap banks such as MAYBANK, PBBANK and RHBBANK meanwhile performed within expectations.
CY22 could be singing a brighter tone.Broadly, we see all banks demonstrating similar trends where they enjoyed loans growth mixed with higher sequential NIMs being the beneficiary of re-pricing of assets. On the contrary, NOII was dragged by lower treasury and investment gains courtesy of the correction from a higher base in CY20. That said, fee based incomes are progressively gaining traction as banks up-sell to the more affluent markets. (refer to the overleaf for further discussions and Table 4 for the most recent earnings guidance). However, this is not forgetting the one-off prosperity tax this yearwhichwill undermine PBT gains and hamper PAT growth readings.
Global macrosare always stirring.The past two years saw global economic progress being derailedby the Covid-19 pandemic from disruption to movements, trade, and production, ultimately undermining confidence and inflating earnings risk. While the gains from the former did experience another bump from the ongoing Russia-Ukraine war with possibilities of triggering a wider global conflict, the latter has mostly subsided as national loan moratorium plans are being phased out and with the local economy making encouraging headways. That said, investors are likely more focused on the possibility of Bank Negara raising the OPR within this year, having rested at 1.75% since July 2020. The anticipation of such is uplifting industry sentiment, which in the long term could translate to growth in banks’ earnings.
We reflect this by lowering our applied market risk premium to our Gordon Growth Model assumptions for our respective calls,raising the target prices to our stock coverage (refer to Table 1 at the overleaf). On the flipside, while the bank management have provided their respective guidance to the anticipated impact from a 25-bps rate hike, we propose a closer look at the banks’ floating-rate financing mixes (refer to Table 2) as they may provide more reactive adjustments to interest rates (refer to Table 2). To recap, we anticipate two rate hikes this year for a total increase of 50-bps to occur during 2HCY22.
Maintain OVERWEIGHT on the Banking Sector. At present, there appears to be more tailwinds than headwinds in the local economic environment, with a smidge of precaution towards potential escalation of international conflicts. Broadly, we anticipate most banks to benefit from the same boons of: (i) higher loans growth from economic reopening/recovery; (ii) higher NIMs with eventual OPR hike; (iii) progressive write-backs of Covid-19 loan provisions; and (iv) investing post-CY22 will witness an earnings surge ex-prosperity tax in CY23. In search of more value offerings, we scan our coverage for picks that may have distinctive propositions. With that, we continue to highlight RHBBANK (OP; TP: RM6.95) as one of the top picks for 2QCY22. We had previously promoted RHBBANK as our 1QCY22 top pick on its digital banking angle. For the coming quarter, we believe closer attention should be placed on the upcoming OPR decisions. Based on recent earnings releases, we gathered that RHBBANK has an optimal mix of CASA and floating-rate financing which puts it in an optimal position to benefit from a rate hike. Additionally, the group continues to offer high dividend prospects (5-6% yield). Additionally, we feature our newly upgraded HLBANK (OP; TP: RM22.70).We highlight HLBANK because it demonstrated the most improved GIL (4QCY21: 0.46% vs.peer average: 2%), even outperforming its pre-Covid-19 level (FY17: 0.9%). We believe this deserves mention as there may be fears that the lapse of repayment programs could stir unexpected dips in asset quality, and in this sense, HLBANK provide sufficiently strong buffers in its books. ItsrobustROE (~10%) is also a nice bonus for investors. We also give AMBANK (OP; TP: RM4.05) an honourable mention as we believe that it will fundamentally and sentimentally revert back to pre-Global Settlement levels in the coming period.
Better appetite for financial institutions. Since July 2020, Bank Negara’s OPR of 1.75% has left banks operating in a low interest rate environment with much re-pricing being done to both deposits and financing products. However, taking cue from the US Federal Reserve which recently introduced a 25-bps hike from its March 2020 low of 0.0-0.25% levels, investors are more confident that our local regulators will follow suit. While we have yet to reflect any material changes to our earnings assumptions in conjunction with our expected two 25-bps OPR hikes in 2HCY22, we anticipate the banking sector to become more attractive in the eyes of investors as NIMs are expected to be rejuvenated. In line with the boost in sentiment, we reflect lower respective risk premiums to our Gordon Growth Model inputs, resulting in higher overall target prices to our stock coverage.
Source: Kenanga Research - 1 Apr 2022
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AMBANKCreated by kiasutrader | Aug 26, 2024
Created by kiasutrader | Aug 26, 2024