Banking sector
Maintain neutral: In a fairly uneventful reporting season, Malayan Banking Bhd’s 1QFY11 results (for 6MFY11E) surprised on the upside mainly due to lower provisions, while RHB Capital Bhd and BIMB Holdings posted lower-than-expected earnings. We remain “neutral” on the banking sector with a “buy” on Public Bank Bhd and BIMB, and “sell” on CIMB Group Holdings Bhd and RHBCap. We are “neutral” on AMMB Holdings Bhd and Hong Leong Bank Bhd.
Cumulative 3QFY11 net profit rose 15% year-on-year (y-o-y), but this was driven primarily by lower provisions. Operating profit was flat, up just 2% y-o-y, due to negative JAWS (income growth rate — expense growth rate), with operating expenses expanding at a faster rate than income. Net profit for 9M rose 14% y-o-y with a moderate improvement (+5% y-o-y) in operating income, but aided yet again by lower provisions.
Positively, loan growth was robust at 17% y-o-y for the top six banks, inclusive of foreign loans. Fee income was also buoyant (+14% y-o-y), while credit charge rates dropped off eight basis points (bps) quarter-on-quarter (q-o-q). On the flip side, net interest margin (NIM) remained under pressure (-13bps y-o-y but stable q-o-q) while investment income was negatively impacted by market volatility.
Earnings growth for our basket of stocks is further trimmed and we now forecast slower net profit growth of 4.5% in 2012 (9.8% in 2013) against 10.6% this year. Our net profit growth forecast of 4.5% for 2012 is a tad slower than consensus’ 6.5%, while our 2013 net profit growth of 9.8% is about 7% behind consensus’ estimate of 12%.
Our loan growth assumptions are unchanged in that we still expect industry loan growth to taper off to 9.4% in 2012 (from 12.4% in 2011), supported by GDP growth of 3.5 to 4%. For the top six banks, we expect gross loan growth (including foreign lending) to average 10.4% in 2012 (17.5% in 2011).
Contrary to some market expectations, we are of the view that interest rates will be unchanged in 1H12. We nevertheless continue to expect some margin compression into 2012, albeit at a slower rate of 5bps against 11bps this year. We have also imputed a 16bps uptick in average non-performing loans ratios in 2012 amid credit charge rates at about 32bps. Overall, we expect 2012 return on equity to come off by one percentage point to 15.3% from 16.3%. — Maybank IB Research, Dec 6
This article appeared in The Edge Financial Daily, December 7, 2011.
Maintain neutral: In a fairly uneventful reporting season, Malayan Banking Bhd’s 1QFY11 results (for 6MFY11E) surprised on the upside mainly due to lower provisions, while RHB Capital Bhd and BIMB Holdings posted lower-than-expected earnings. We remain “neutral” on the banking sector with a “buy” on Public Bank Bhd and BIMB, and “sell” on CIMB Group Holdings Bhd and RHBCap. We are “neutral” on AMMB Holdings Bhd and Hong Leong Bank Bhd.
Cumulative 3QFY11 net profit rose 15% year-on-year (y-o-y), but this was driven primarily by lower provisions. Operating profit was flat, up just 2% y-o-y, due to negative JAWS (income growth rate — expense growth rate), with operating expenses expanding at a faster rate than income. Net profit for 9M rose 14% y-o-y with a moderate improvement (+5% y-o-y) in operating income, but aided yet again by lower provisions.
Positively, loan growth was robust at 17% y-o-y for the top six banks, inclusive of foreign loans. Fee income was also buoyant (+14% y-o-y), while credit charge rates dropped off eight basis points (bps) quarter-on-quarter (q-o-q). On the flip side, net interest margin (NIM) remained under pressure (-13bps y-o-y but stable q-o-q) while investment income was negatively impacted by market volatility.
Earnings growth for our basket of stocks is further trimmed and we now forecast slower net profit growth of 4.5% in 2012 (9.8% in 2013) against 10.6% this year. Our net profit growth forecast of 4.5% for 2012 is a tad slower than consensus’ 6.5%, while our 2013 net profit growth of 9.8% is about 7% behind consensus’ estimate of 12%.
Our loan growth assumptions are unchanged in that we still expect industry loan growth to taper off to 9.4% in 2012 (from 12.4% in 2011), supported by GDP growth of 3.5 to 4%. For the top six banks, we expect gross loan growth (including foreign lending) to average 10.4% in 2012 (17.5% in 2011).
Contrary to some market expectations, we are of the view that interest rates will be unchanged in 1H12. We nevertheless continue to expect some margin compression into 2012, albeit at a slower rate of 5bps against 11bps this year. We have also imputed a 16bps uptick in average non-performing loans ratios in 2012 amid credit charge rates at about 32bps. Overall, we expect 2012 return on equity to come off by one percentage point to 15.3% from 16.3%. — Maybank IB Research, Dec 6
This article appeared in The Edge Financial Daily, December 7, 2011.
