• Core  net  profit  growth  cut  to  2%  (from  5%)  for  2014  and  8% (from 9%) for 2015. Sector ROE to decline to 13% from 14%.
• Downside  risks  include  (i)  greater-than-expected  NIM compression and (ii) asset quality issues.
• Stay NEUTRAL. BUY  AFG, HL Bank and RHB Capital.

What’s New

3Q14  saw  the  results  of  most  banks coming  in  within  expectations but  there  were  disappointments  from  the  two  largest  banks  – Maybank and CIMB, as well as HLFG. Positively, NIM held up QoQ in 3Q14, aided by the OPR hike while provisions were lower YoY. This was  however  offset  by  lower  NOII  and  as  a  result,  3Q14  core  net profit  declined  2%  YoY  for  our  basket  of  stocks.  9M14  core  net profit  rose  a  marginal  2%  YoY.  This  results  season,  we  upgraded Public  Bank  to  HOLD  from  SELL  and  downgraded  HLFG  to  HOLD from BUY, after having outperformed its peers.

What’s Our View

Sector  earnings  growth  has  continued  to  see  downward  pressure and  we  have  since  cut  our  estimates.  We  now  expect  operating income  to  expand  by  just  1%  in  2014  and  10%  in  2015,  while  net profit  growth  is  projected  at  2%  in  2014,  8%  in  2015.  The  faster growth  in  2015  builds  in  the  assumption  of  ongoing  NIM compression  (but  to  a  lesser  degree  compared  to  2014),  and  for credit  costs  to  normalize  higher ,  offset  by  higher  NOII  and improved cost efficiencies.

Downside  risks  to  2015  earnings  include  (i)  greater-than-expected NIM  pressure  from  stiff  competition  for  funds  and  (ii)  more significant asset quality issues. Malaysian banks continue to be on a capital  preservation  mode  and  we  expect  average  ROEs to  decline to 13.2% in 2015 from 13.9% in 2014 (15.1% in 2013).

Source: Maybank Research - 3 Dec 2014