Banking - Not So Gloomy Days Ahead

Date: 
2021-10-01
Firm: 
HLG
Stock: 
Price Target: 
2.15
Price Call: 
BUY
Last Price: 
2.08
Upside/Downside: 
+0.07 (3.37%)
Firm: 
HLG
Stock: 
Price Target: 
2.80
Price Call: 
HOLD
Last Price: 
3.60
Upside/Downside: 
-0.80 (22.22%)
Firm: 
HLG
Stock: 
Price Target: 
3.00
Price Call: 
HOLD
Last Price: 
3.54
Upside/Downside: 
-0.54 (15.25%)
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: 
5.10
Price Call: 
HOLD
Last Price: 
5.04
Upside/Downside: 
+0.06 (1.19%)
Firm: 
HLG
Stock: 
Price Target: 
9.40
Price Call: 
BUY
Last Price: 
8.96
Upside/Downside: 
+0.44 (4.91%)
Firm: 
HLG
Stock: 
Price Target: 
4.50
Price Call: 
BUY
Last Price: 
4.53
Upside/Downside: 
-0.03 (0.66%)
Firm: 
HLG
Stock: 
Price Target: 
6.85
Price Call: 
BUY
Last Price: 
6.04
Upside/Downside: 
+0.81 (13.41%)

Both system loans and deposits growth tapered to 2.5% and 3.7% respectively. Also, leading indicators were still lacklustre but asset quality held steady. As for NIM, we see it coming under slight pressure premised on brewing deposit competition and limited scope for further CASA expansion. In our opinion, the sector’s risk-reward profile continues to skew favourably to the upside as we believe most negatives have been priced in by the market. Keep OVERWEIGHT; BUY calls include: Maybank, Public, RHB, BIMB, and Affin.

Aug-21’s loans growth tapered further to 2.5% YoY (Jul: +3.1%) as both household (HH) and business (Biz) segment have weakened to 3.4% (Jul: +4.2%) and 0.8% (Jul: 1.3%) respectively; slowdown was sighted across the board. Overall, it was trending beneath our +3.0-3.5% full-year FY21 growth estimates but we expect this to pick up pace at the later part of the year, given gradual economic reopening.

Leading indicators still lacklustre. Loan application remains soft at -6.1% YoY (Jul: -28.4%), dragged by weak HH credit demand (-24.1%); that said, it was mitigated by better appetite for Biz loans (+28.7%). Similarly, loans approval continues to be dull (- 4.4% vs Jul: -16.2%), no thanks to HH (-32.0%) but Biz again provided some respite (+41.7%).

Deposits growth lost steam to 3.7% YoY (Jul: 4.0%), given softer CASA (+11.7% vs Jul: 12.9%) and tepid FD (-2.8% vs Jul: -2.0%). Overall, Aug-21’s loan-to-deposit ratio remains flattish MoM at 87% (near to Feb-18’s peak of 89%). We understand there is brewing deposit competition in the market.

Asset quality held steady as gross impaired loans (GIL) ratio was unchanged MoM at 1.67%; HH came in flat but Biz saw a slight 2bp uptick. We expect GIL ratio to climb but would not be overly concerned as banks have already made heavy pre-emptive provisioning in FY20 and we reckon credit risk has been adequately priced in by the market, looking at the elevated NCC assumption employed for FY21 by both us and consensus (above the normalized run-rate but below FY20’s level). Furthermore, the Government and BNM will remain supportive in helping troubled borrowers, limiting a significant deterioration in GIL ratio.

Interest spread narrowed. Average lending rate fell 3bp MoM while the 3-mth board fixed deposit rate dropped 1bp. As a result, the spread narrowed by 2bp. We expect net interest margin (NIM) to be under slight pressure given brewing deposit rivalry and limited scope for further CASA expansion.

Retain OVERWEIGHT. The sector’s risk-reward profile continues to skew favourably to the upside as most negatives have been considered by the market. In our opinion, Covid-19 woes will likely fizzle out in 2022 while the state of the economy and banking sector will only get better in time. Furthermore, valuations are undemanding and there is ample liquidity in the market. For large-sized banks, we like Maybank (TP: RM9.40) for its strong dividend yield, and Public Bank (TP: RM4.50) for its defensive qualities, over CIMB (TP: RM5.10). For mid-sized banks, RHB (TP: RM6.85) is favoured more than AMMB (TP: RM3.00) as the former has a higher CET1 ratio coupled with larger FVOCI reserve to buffer against potential yield curve volatility. For small-sized banks, BIMB (TP: RM4.80) and Affin (TP: RM2.15) are preferred over Alliance (TP: RM2.80); we like the former for its positive long-term structural growth drivers and better asset quality while the latter has value unlocking potential.

 

Source: Hong Leong Investment Bank Research - 1 Oct 2021

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