In our view, the conclusion of the general election yesterday should: 1) Remove the political risk overhang, leading to lower risk premiums; 2) Lead to investments picking up pace again; and 3) Ease concerns of cancellations/delays in the rollout of ETP projects. We raised our fair value to MYR4.00 from MYR3.60 to reflect lower risk premiums but maintained our Neutral recommendation.  

♦  General election uncertainties removed, finally. Yesterday’s general election resulted in the Barisan Nasional coalition retaining control of the government. We think this eases the risks of cancellations and changes to the terms of big-ticket projects, and will help remove the uncertainties that may have impacted investment spending decisions by businesses. As seen from the recent banking statistics, business loan growth has slowed down to +8.7% y-o-y in Feb ’13 from +14.4% y-o-y in Jul’ 12 as businesses (and especially GLCs) adopted a “wait-and-see” stance (household loan growth stable at 11.5-12.5% y-o-y during this period). With the overhang removed, we expect loan demand from the business segment to pick up and this would be positive for the banks.

♦  Banking stocks poised to play catch-up. Malaysian banking stocks have lagged regional peers in terms of share price performance, up 3.7% YTD (weighted average). This is in contrast to regional banking stocks. Indonesia banks have been the best performer YTD with the big cap banks up an average 23% while the large Thai banks and Singapore banks are up 14.5-15.5% YTD. We believe the subdued performances of local banking stocks have largely been due to uncertainties arising from the general election as fundamentally, we see no change to the sector’s prospects. With the political overhang now removed, this should lead to lower risk premiums.  

♦  Investment case. To reflect lower risk premiums, we raised our target CY13 PER to 10x from 9x, which results in a revised fair value of MYR4.00 (MYR3.60 previously). We think near-term focus will be on Affin’s Hwang-DBS bid. While a potential deal appears to be a good fit in terms of businesses both parties bring to the table, this would need to be considered together with pricing and further details in terms of potential synergies that the merged entity may be able to reap. For now, we are maintaining our Neutral call on the stock.

Source: RHB