Post 2QCY22earnings season, we maintain our OVERWEIGHTratingon the banking sector. Results were mostly as expected, with only onedisappointment reported. Broadly, the banks mostly saw improvements in loans book as demand for financing was spurred bytheeconomic recovery. On the flipside, NOII was deterred owing to the high base set byCY2021stronger investment sentiment. Though this mostly led to stable pre-provision profits, most banks did register significantly lower credit costs as impairment stresses eased in a post-pandemic landscape. These trends are expected to carryon into 2HCY22 with prosperity tax looking to drag those with a December-ending year of assessment. Recall that the only updateto our call were BIMB (from OP to MP) while TP updates came from AMBANK (OP; TP: RM4.75 from RM4.35), CIMB(OP; TP: RM6.05 from RM5.70)and HLBANK(OP; TP: RM23.30 from RM22.90). For now, we keep our Top Picks to be dividend-focused counters as while fundamentals remain sound, inflation-led pressures may hamper sentiment.MAYBANK (OP; TP: RM11.05) and AFFIN (OP; TP: RM2.45) are our selected highlights.
Reported earnings mostly positive. The concluded 2QCY22 results season was mostly stable with some misses. Similar to the prior quarter, the comparison breakdown against our forecast numbers remained at 20%, (above), 70% (within), and 10% (below). The positive surprises belonged to CIMB and HLBANK, which were supported by better-than-expected NOII (led by strong regional operations) and associate contributions (18%-owned associate, Bank of Chengdu), respectively. On the flipside, BIMB did not meet expectations due to the incurrence of higher-than-expected operating expenses amidst investments to uplift operational efficiencies. Other notable highlights include MAYBANK which booked a lumpy one-off provision against the leisure and oil & gas sectors which may not be showing encouraging recovery and ABMB’s net impairment writeback reporting which skewed its YTD performance. We expect both these names to reflect a more normalised earnings trend in the coming quarters.
(refer to the overleaf for the performance breakdown between our forecast and consensus estimates)
Upbeat numbers but still heedful. Reflecting on 2HCY22 outlook, most corporates are assured in meeting their respective guidances in the coming periods. Some have even upgraded their targets (mainly credit costs to ease up previously tighter practices) given better visibility on their book performances. We believe the lower credit cost expectations will be the leading driver to earnings growth (not accounting for prosperity tax impact) as net income would still be somewhat muted from softer treasury performance. The lapse of repayment assistance programs may cause some blips to GIL but the accounts at risk typically make up an insignificant portion of respective loans books (<3%).
That said, the banks are unanimous with the view that economic risks still prevail, possibly arising from supply chain disruptions, volatile commodities prices and global macros shaken by further conflict worries. This reservation is likely impeding upgrade to loans growth expectation, in spite some banks are already well ahead of their full-year expectations. With the exception of MBSB, further OPR hikes (which we expect a 25 bps in each of Sep 2022 and Nov 2022 MPC meetings) would be a benefit to the banks as higher rates allow for upward repricing on financing against greater competition for cheap deposits.
(refer to the overleaf for updates on corporate guidances post-2QCY22 results)
Maintain OVERWEIGHT on the Banking Sector. Post results season, we continue to be optimistic on the banking space as the sector is expected to showcase resilience in a rising interest rate environment. We opine that the ability for customers to finance their loans would not be a major overall concern as economic recovery should uplift income level while current rates are still lower than pre-Covid-19’s. With the lapse of prosperity tax and much stable asset quality expectations in CY2023, the banks should demonstrate more vibrant profits which would further fortify dividend returns. That said, given that current macros and sentiment which are affected by ongoing uncertainties, we recommended positioning with names that could provide solid dividend cushions in the near to medium-term. With that, our Top Picks are MAYBANK (OP; TP: RM11.05) which we highlight for stellar dividend returns (7-8%) paired to its commendable asset quality readings (GIL: <1.9%, below listed peers’ average of 2.0%) in spite of being the leader in loans and deposits share. For the smaller cap banks, we believe AFFIN (OP; TP: RM2.45) presents opportunities with the return of earnings growth prospects, thanks to its AIM22 initiatives. Prospective special dividends from the disposal of AHAM could further boost its decent yield of 5-6%.
Source: Kenanga Research - 5 Sept 2022
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MAYBANKCreated by kiasutrader | Aug 26, 2024