Banking - Solid Trends

Date: 
2022-01-03
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: 
7.00
Price Call: 
BUY
Last Price: 
6.04
Upside/Downside: 
+0.96 (15.89%)
Firm: 
HLG
Stock: 
Price Target: 
3.45
Price Call: 
BUY
Last Price: 
2.97
Upside/Downside: 
+0.48 (16.16%)
Firm: 
HLG
Stock: 
Price Target: 
3.30
Price Call: 
BUY
Last Price: 
3.60
Upside/Downside: 
-0.30 (8.33%)
Firm: 
HLG
Stock: 
Price Target: 
2.25
Price Call: 
BUY
Last Price: 
2.08
Upside/Downside: 
+0.17 (8.17%)

Both system loans and deposits growth picked up momentum to 4.3% and 6.4% respectively. Similarly, leading indicators and asset quality were solid. For NIM, we expect it to widen in FY22 on the back of more benign deposit rivalry, better asset security reinvestment yield, coupled with potential OPR hike. In our view, the sector’s risk-reward profile remains skewed favourably to the upside. Retain OVERWEIGHT; BUY calls include: Maybank, Public, RHB, Alliance, BIMB, Affin.

Nov-21’s loans growth accelerated further to 4.3% YoY (Oct: +3.3%), again led by both the household (HH) and business (Biz) segments, which grew 4.1% (Oct: +3.7%) and 4.8% (Oct: +3.1%) respectively. In HH, growth was fairly broad base, coming from home, auto, personal, and credit card loans. As for Biz, it was spurred on by working capital and other purpose financing. Overall, system loans growth beat our +3.0-3.5% full-year FY21 estimates; as such, we revise it up to 4.0-4.5% given abating Covid-19 headwinds. We see FY22 loans rising at a similar pace, aided by economic recovery.

Solid leading indicators. Loan applications increased 21.5% YoY (Oct: +4.2%) given stronger HH (+25.7% vs Oct: +11.3%) and Biz credit appetite (+14.7% vs Oct: -8.1%). Similarly, loans approval was up 15.3% (Oct: +2.2%) as lending to both HH (+13.6% vs Oct: -5.1%) and Biz became more accommodative (+17.8% vs Oct: 13.9%).

Deposit growth picked up momentum to 6.4% YoY (Oct: +4.4%) due to expansion across the board and this came primarily from Biz enterprises. Overall, Nov-21’s loan to-deposit ratio was seen to be flattish MoM at 87% (close to Feb-18’s peak of 89%).

Asset quality showed some robustness as gross impaired loans (GIL) ratio fell 5bp MoM to 1.47%; this was aided by both HH and Biz given their respective drop of 5bp. We expect GIL ratio to rise but would not be overly concerned as banks have already made heavy pre-emptive allowances in FY20-21 and we reckon credit risk has been adequately priced in by the market, looking at the elevated NCC assumption utilized for FY22-23 by both us and consensus (still above the normalized run-rate but below FY20-21’s level). Moreover, the Government and BNM will stay supportive in helping troubled borrowers, limiting a significant deterioration in GIL ratio.

Interest spread widened. Average lending rate expanded 2bp MoM while the 3-mth board fixed deposit rate remained flattish. In turn, the spread broadened by 2bp. Also, we expect net interest margin (NIM) to increase in FY22 on the back of benign deposit competition, better asset security reinvestment yield, along with potential OPR hike.

Maintain OVERWEIGHT. We believe the sector’s risk-reward profile is skewed to the upside as most negatives would 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. As such, we are bullish and employ a rather broad stock buying strategy in 1H22. For large-sized banks, we like Maybank (TP: RM9.40) for its strong yield and Public (TP: RM4.50) for its resilient asset quality. For mid -sized banks, RHB (TP: RM7.00) is favoured for its high CET1 ratio and attractive price-tag. For small-sized banks, all 3 under our coverage are Buy calls for different reasons: (i) BIMB (TP: RM3.45) for its positive structural growth drivers, (ii) Alliance (TP: RM3.30) is likened for its quicker-than-expected upward normalizing dividend payout, (iii) Affin (TP: RM2.25) for its potential asset management arm value unlocking exercise.

 

Source: Hong Leong Investment Bank Research - 3 Jan 2022

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