May 2023 system loans grew 4.8% YoY, within our 4.0%-4.5% target as we remain guarded on slower overall activities in 2HCY23, which could lean towards business loans amidst possible softening of housing loans. Gross impaired loans (GIL) still appears manageable at 1.80% despite a slight increase as provisions and loan loss coverage readings remain adequate. Meanwhile, more deposits are re-entering the system with a greater allocation to CASA, likely stemmed by the maturity of short-term fixed deposit products locked in at the end of CY22. There could be room for product rates to ease as we do not anticipate further OPR hikes in CY23. We maintain our OVERWEIGHT call on the sector. Sector-wide weakness may lead to investors seeking more tactical opportunities than fundamental ones. Hence, we recommend names such as: (i) CIMB (OP; TP: RM6.00) for its highest potential writeback gains amongst large cap banks, (ii) PBBANK (OP; TP: RM4.40) for possible resurgence of interest from clarity in its shareholdings, and (iii) AMBANK (OP; TP: RM4.80) as we revisit its consolidation prospects.
Back to work. In May 2023, system loans expanded by 4.8% YoY after a slower performance from April’s Hari Raya festivities. This is still within our CY23 expectations of 4.0%-4.5% as household (+5.4%) and business (+4.0%) accounts continued to grow, with possible easing in 2HCY23. On a Mom basis, we saw a higher pick-up from business accounts (+0.7%) across the board as working capital obligations resumed fully. Meanwhile, households (+0.4%) continue to see progressive entrants of new home-owners fuelled by less cash flows intensive primary market purchases. We maintain our view that household income may be hurt by inflationary pressures later on; particularly with the domestic currency struggling to regain strength (refer to Tables 1−3 for breakdown of system loans).
Applications still supportive (+27% YoY, +25% MoM). In line with the return to business-as-usual, higher applications came in to make up for the slowness exhibited during the festive season. It is of note that CY22’s Raya seasons were slightly later, falling on early May. That said, May 2023’s unexpected 25 bps OPR hike could result in slower applications in the coming month as banks work to re-adjust their financing rates (refer to Tables 4−5 for breakdown of system loan applications).
Uptick in GIL may pause. May 2023 GIL of 1.80% (Apr 2023: 1.78%, May 2022: 1.79%) reflected a third consecutive month of sequential increase but this could be affected by delayed payments to support festive spending, similarly reflected during CY22. We opine that current levels may not be concerning yet as GIL ratio typically range between 1.6%-1.8%. On the other hand, industry loans loss coverage continued to fall, at 93.2% (Apr 2023: 94.2%, May 2022: 100.1%) as banks utilised their provisions with few signals indicating the need to top up. Meanwhile, industry CET-1 ratio remains stable at 14.6% (Apr 2023: 14.8%, May 2022: 14.3%) (Refer to Tables 6−7 for breakdown of system impaired loans).
Rebalancing deposits allocation. Industry deposits saw a MoM increase of 0.5% (+6.7% YoY) as cash churning spending is likely to have eased. This level is within our CY23 deposits growth target of 5.0%-5.5% with some moderation expected in the second half. CASA ratio rose to its YTD-high of 28.9% (Apr 2023: 27.9%, May 2022: 30.8%) as customers could have expired out of their previously locked in term deposits and await more attractive rates going forward. Given that OPR levels are mostly stable, we opine that this presents the banks with an opportunity to soften product rates which were previously heightened by competition.
Maintain OVERWEIGHT on the banking sector. Weaker perception could be led by discouraging local currency performance as well as generally less bullish production numbers painting our domestic landscape to be less attractive. Still, we continue to have confidence in the banking space for its resilient earnings and with average dividend yield of 6% providing an attractive shelter for longer-term investors amidst softening favour for the space.
For this 3QCY23 season, we believe investors may seek more tactical opportunities given the ongoing sector-wide weakness. We highlight CIMB as we believe investors may pay closer attention towards its write-back prospects closer to the end of the year, and CIMB’s sizeable overlay relative to earnings present some handsome translation to earnings and special dividends. On the other hand, the group is also expected to report double-digit earnings growth in the coming years, where some peers could only see more modest performance. We also like PBBANK as the large outflux of foreign investors from the stock may be unwarranted, seemingly only justified by weakening MYR undermining foreign portfolio holdings. The group also appears arrested by uncertainties in its future shareholding structure, but we believe any clarity from here only offers upside prospects as overall operations are expected to be fundamentally intact given its systematic importance to the local financial ecosystem. Being the safest bank in terms of asset quality readings, present levels offer cheap opportunities for entry. Lastly, we also consider AMBANK as we believe its current fundamentals are highly supportive of healthier discussions for M&As, which has in the past been frequently considered. The group is also one of the leaders in terms of SME profile, which is touted as a highgrowth segment that could accelerate market share growth for the group.
Source: Kenanga Research - 3 Jul 2023
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CIMBCreated by kiasutrader | Aug 23, 2024
Created by kiasutrader | Aug 23, 2024