Banking - Looking Ahead for Better Times

Date: 
2021-02-02
Firm: 
HLG
Stock: 
Price Target: 
1.90
Price Call: 
HOLD
Last Price: 
2.08
Upside/Downside: 
-0.18 (8.65%)
Firm: 
HLG
Stock: 
Price Target: 
2.90
Price Call: 
HOLD
Last Price: 
3.60
Upside/Downside: 
-0.70 (19.44%)
Firm: 
HLG
Stock: 
Price Target: 
4.05
Price Call: 
BUY
Last Price: 
3.54
Upside/Downside: 
+0.51 (14.41%)
Firm: 
HLG
Stock: 
Price Target: 
4.80
Price Call: 
BUY
Last Price: 
2.97
Upside/Downside: 
+1.83 (61.62%)
Firm: 
HLG
Stock: 
Price Target: 
4.35
Price Call: 
HOLD
Last Price: 
5.04
Upside/Downside: 
-0.69 (13.69%)
Firm: 
HLG
Stock: 
Price Target: 
9.45
Price Call: 
BUY
Last Price: 
8.96
Upside/Downside: 
+0.49 (5.47%)
Firm: 
HLG
Stock: 
Price Target: 
4.35
Price Call: 
HOLD
Last Price: 
4.53
Upside/Downside: 
-0.18 (3.97%)
Firm: 
HLG
Stock: 
Price Target: 
6.55
Price Call: 
BUY
Last Price: 
6.04
Upside/Downside: 
+0.51 (8.44%)

System loans growth slowed to 3.4% YoY while deposits remained firm at 4.5%. That said, leading indicators gotten better but asset quality continued to show weakness. As for NIM, we see it recovering in 4Q20 but a squeeze may return in 1H21 given a potential 25bp OPR cut. That said, we are still positive on banks given the impending Covid-19 vaccination rollout and supportive government measures in helping troubled borrowers. Also, we reckon it is only a matter of time when the market looks forward again on economic activities heading back to the path of normalcy. Hence, retain OVERWEIGHT. We have BUY ratings on Maybank, AMMB, RHB, and BIMB.

Loans growth moderated. Dec-20’s system loans growth slowed to 3.4% YoY (Nov: +3.8%). This was no thanks to business (Biz) lending as it tapered to 0.5% while the household (HH) segment held steady at 5.0%. In Biz, the deceleration was caused by tepid working capital loan (+0.5%). As for HH, the growth was supported by mortgage (+7.1%) and personal financing (+6.2%). Overall, it ended close to our 2020 estimate (0.1ppt variance). For 2021, we see this expanding at a slightly quicker pace of +3.5- 4.0% given gradual economic recovery from impending Covid-19 vaccination rollout.

Leading indicators improved. Loan applications grew 12.3% YoY (Nov: -5.1%) due to better HH credit appetite (+24.6%) while the decrease at Biz has narrowed to -4.5% (vs Nov: -30.1%). Similarly, loans approval saw its decline shrinking to -0.1% vs Nov: - 4.2%; this was backed by accommodative HH lending (+14.1%) and improvement at the Biz segment (-13.4% vs Nov: -20.6%).

Resilient deposits growth of 4.5% YoY (Nov: +4.4%) given robust CASA (+19.3%) and foreign currency deposits (+8.5%), which masked FD weakness (-3.6%). Overall, Dec-20’s loan-to-deposit ratio (LDR) was flattish sequentially at 88% (near to the peak of 89%, back in Feb-18). In general, deposit taking competition is benign.

Asset quality showed some weakness as gross impaired loans (GIL) ratio ticked up 4bp MoM to 1.57%, no thanks to both the HH (+3bp) and Biz segments (+7bp) as the automatic loan deferment ended in Sep-20. However, with banks providing targeted assistance, we expect the sector’s GIL ratio to remain at low levels throughout 1H21.

Interest spread widened. Average lending rate was unchanged while 3-month board fixed deposit rate slipped 5bp. As a result, the spread expanded 5bp MoM to 1.93%. Overall, we see net interest margin (NIM) recovery in 4Q20 but a squeeze may return in 1H21 given a potential 25bp OPR cut due to high Covid-19 case count which could slow down and delay slightly the anticipated economic recovery this year.

Retain OVERWEIGHT. We are still positive on banks given the impending Covid-19 vaccination rollout. Also, we believe the Government and BNM will remain supportive in helping troubled borrowers. In our view, it is only a matter of time when the market starts to look forward again (returning to path of normalcy). Thus, we would advocate buying on dips; valuations are undemanding and there is ample liquidity in the market. For large-sized banks, we like Maybank (TP: RM9.45) over Public (TP: RM4.35) and CIMB (TP: RM4.35); this is because Public’s valuation is rich, foreign shareholding is higher, and offers lower dividend yield while CIMB is a riskier proposition given less resilient asset quality. For mid-sized banks, both RHB (TP: RM6.55) and AMMB (TP: RM4.05) are preferred picks due to attractive valuations. As for small-sized banks, BIMB (TP: RM4.80) is favoured over Affin (TP: RM1.90) and Alliance (TP: RM2.90), for its positive long-term structural growth drivers and better asset quality.

Source: Hong Leong Investment Bank Research - 2 Feb 2021

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