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 MYR15.40 from MYR14.30 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). While HL Bank is not a big player in the corporate lending space, HL Bank would still benefit as the impact from the ETP projects flows through the value chain and comes down to the SMEs.

♦  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 13.5x from 12.5x, which results in a revised fair value of MYR15.40 (MYR14.30 previously). The group has executed well in terms of the extraction of cost synergies, but we think the extraction of revenue synergies ahead is a more challenging task. In addition, net interest income growth has, thus far, been slightly tepid and there would be more pressure on bottom-line growth when credit cost normalises, in our view. Thus, we are keeping our Neutral call. 

Source: RHB