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 MYR7.60 from MYR7.04 to reflect lower risk premiums, and upgraded our call to Buy from Neutral.  

♦  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. The combination of these two factors means that Malaysian banks are poised to play catch-up to its regional peers, in our 
view.  

♦  Investment case. To reflect lower risk premiums, we raised our target CY13 PER to 13x from 12x, which results in a revised fair value of MYR7.60 (MYR7.04 previously). AMMB’s execution track record means we would not be too surprised if synergies from recent acquisitions turn out to be better-than-expected. The stock is also a laggard and, hence, we find valuations attractive. Thus, we upgrade our call to  Buy from Neutral. A key near-term risk is overpaying for Hwang-DBS, but think the deal has better cost synergies potential (vs. Affin-Hwang-DBS deal).

Source: RHB