• Post-MCO 2.0 consumption indicators are promising as both credit card spend and consumer loan application showed strong rebound in March. Likewise, total loan rose with property and consumer making up 61% and 17% of applications, which are positive for consumer banks, while current account savings account (CASA) ratio hit another record high. Macquarie Equities Research (MQ Research) sees more upside valuation in RHB/CIMB, which remain MQ Research’s top picks in the Malaysian banking sector. Read more.

Post-lockdown bounce is encouraging, but risks remain

• Following the relaxation of the second movement control order (MCO2.0), consumption indicators enjoyed a strong rebound in March. Credit card spend surged 28% m/m (+26% y/y) to RM11.3bn, as consumers discharged substantial pent-up demand from the lockdown. At the same time, consumer loan applications surged to a record high RM60bn in March, +25% vs pre-lockdown applications. Property and consumer made up 61%/17% of applications, reinforcing MQ Research’s view that consumer-focused banks like Public Bank (PBK) and Hong Leong Bank (HLBK) have much stronger operational tailwinds vs corporate-focused peers in 2021. Overall, consumer loan growth rose to +5.7% y/y in March vs non-consumer +1.4% y/y growth; total loan growth was 3.9%.

• A fourth wave in Covid-19 infections remains a key risk to robust consumer outlook with 3.3k cases/day already at 70% of MCO2.0’s peak of 4.7k cases/day. The government has already moved to tighten inter-state travel, and MQ Research expects movement restrictions to increase in the coming months to slow down infection rates and buy time for vaccine deployment.

• Another interesting trend was the high churn in working capital, which drove record disbursements and repayments in March. MQ Research believes this is driven by lumpy churn in working capital by corporates in March. Sectors that drove the jump in churn included mining and quarrying (MQ Research believes driven by O&G), but MQ Research actually saw net repayments overall. Sectors with high new disbursements included wholesale/retail trade, which is aligned with economic reopening.

Other Takeaways

• Liquidity in the system remains ample, with loan-to-deposit ratios (LDR) falling to 87% in March as deposit growth rose to 5.9% vs loans growth of 3.9%. The CASA ratio hit another record high of 31.5% as individuals’ savings continued to grow at a robust +7% y/y. The banks’ liquidity coverage ratio (LCR) of 145% remains very healthy. Lastly, capital adequacy dipped to 14.4% in 1Q21 following dividend payments.

Outlook

• The data continues to support the sanguine view on consumer-focused backs.  MQ Research expects the operational and asset quality tailwinds to place a high floor under the valuations of Public and HLBK. However, MQ Research sees more valuation upside in RHB/CIMB, which remain its top sector picks. MQ Research’s order of preference is: RHB, CIMB, HLBK, PBK, MAYBANK (MAY), and AmBank (AMM).

12-month Target Price Methodology

• CIMB MK: RM4.90 based on a Price to Book methodology
• RHBBANK MK: RM6.55 based on a Price to Book methodology
• HLBK MK: RM20.65 based on a Price to Book methodology
• PBK MK: RM4.50 based on a Price to Book methodology
• MAY MK: RM8.20 based on a Price to Book methodology
• AMM MK: RM2.50 based on a Price to Book methodology

Source: Macquarie Research - 4 May 2021