Kenanga Research & Investment

Banking - Final OPR Nudge for the Year

kiasutrader
Publish date: Fri, 04 Nov 2022, 10:05 AM

In its final MPC meeting in 2022, BNM hasonce again raised the OPR by 25 bps to 2.75% yesterday, as expected. Unyielding inflationary pressures continue to be of note, although we do expect this to graduallyease with the expectation of one remaining 25 bps hike in 1QCY23to 3.00%. Earnings impact to corporates are marginal (1-3bps),as guided. Aside from earnings revisions, we also upgraded our call for PBBANK (TP: RM4.70) from MP to OP as current price levels appear attractive to position with its leading GIL readings as well as high retail proposition. It is also one ofthreeof our 4-star ESG rated stocks (the others being ABMB and CIMB). We maintain our OVERWEIGHT call on the sector, recommending investors to capitalise on the interest rate up-cycle by favouring optimal loans (high SME, low fixed rate financing) and deposit (high CASA) books with added merits. Our stock picks are CIMB (OP; TP: RM6.40), MAYBANK (OP; TP: RM10.40) and ABMB (OP; TP: RM4.20).

One more bump to margins. This fourth 25 bps OPR hike appears to have a similar annualised impact at 1-3 bps to corporate NIMs. This translates to earnings updates of up to 2%, albeit with minimal impact to CY22 performances given we are at the tail-end of the period.

Post update, most of our stock calls remain unchanged with minor upticks to the TP of CIMB and PBBANK. In addition, we upgraded our call for PBBANK to OP (from MP) as recent selling presents opportunities. PBBANK commands the leading GIL ratio amongst peers (0.3% vs. peer average of 2.1%) which could be attributable to its densely collateralised housing loan portfolio. Current price points would allow investors to gain a more modest ~4% dividend yield in the long-run. Additionally, PBBANK has the largest green financing books with a stricter stand regarding coal financing. (refer to the overleaf)

Maintain OVERWEIGHT on the Banking Sector. Despite having eluded inflationary pressures which may bring rise to delinquency risks, we believe the banking sector’s asset quality concerns are well managed as repayment trends are resuming healthily from recoveringeconomic activity as well as higher income and employment. Provisions are still tightly managed within banks and heavy overlays are still in place to be utilised should a shift in macros make a drastic turn. In this rising rate environment, demand for loans (particularly in the retail front) may subside but this could be cushioned by higher interest margins, for which we anticipate one further 25 bps hike to take place in 1QCY23.

Our stock selections during this period, for the larger cap banks are as follows: (i) CIMB (OP; TP: RM6.40) for defensive NOII reporting as trading performances are supported by its regional entities. It also commands one of the highest CASA books amongst the large cap banks. Notably, we have awarded CIMB a 4-star ESG rating for its sustainable financing efforts; (ii) MAYBANK (OP; TP: RM10.40) which remains our dividend favourite (7-8% yield) and provide shelter forinvestors preferring more secured returns. As the market share leader in loans and deposits, MAYBANK would also be more widely exposed to the benefits of economy reopening. Meanwhile, we pick ABMB (OP; TP: RM4.20) from amongst the small cap banks for being the leader in SME loan proportions (30%) which is expected to be the highest growth segment as well as for its highest CASA mix (50%). The stock’s fundamentals are also comparatively better than its larger cap peers in terms of ROE (10%) and dividend yields (6%).

Source: Kenanga Research - 4 Nov 2022

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