Banking sector
Upgrade to neutral from underweight: We have turned more positive on the banking sector and consequently upgrade our sector recommendation to “neutral” from “underweight”.
The two key factors that underpin the change in our sector view are: (i) easing macro headwinds; and (ii) the sector has underperformed the broader market and regional peers year-to-date (YTD).
While we think the eurozone is unlikely to avoid a recession in 2012, it appears to have pulled back from the brink of a meltdown in late-2011. The recovery in the US economy appears to be gaining momentum after a string of positive economic data in early 2012.
These suggest that the risk of a double-dip global recession is receding and outlook is becoming less gloomy. This has improved the odds for an upgrade to our real GDP growth forecast and the Malaysian economy could turn out to be stronger than our 2012 forecast of +3.6%.
YTD, the sector has underperformed the broader market and regional peers. Consequently, while Malaysian banks still trade at a premium to regional peers, the premium has narrowed. In addition, we think the slower sector earnings growth ahead has largely been priced in as our earnings forecasts are generally in line with consensus. Thus, we do not expect the sector to underperform the market too significantly and we see share price weaknesses as buying opportunities. When the economic upcycle begins, it is the banks that tend to take the lead in lifting the market to higher levels.
We make no change to our earnings forecasts. With the risk of a global recession receding, we have reverted to an earnings-based valuation methodology to derive our fair value estimates for the banks.
In addition, we have raised our target 2012 PER multiples to reflect lower risk premiums with the benchmark 2012 PER for the banks being 14 times, in other words in line with the target PER for the KLCI. Overall, we have raised our fair value estimates for the banks by between 6.5% and 30.5%.
We upgrade Malayan Banking Bhd to “outperform” from “underperform” while CIMB Group Holdings Bhd and AMMB Holdings Bhd are rated “market perform” (both “underperform” previously).
We make no changes in recommendation for the other stocks. Overall, we raise our sector call to “neutral” from “underweight”. — RHB Research Institute, Feb 13
This article appeared in The Edge Financial Daily, February 14, 2012.
Upgrade to neutral from underweight: We have turned more positive on the banking sector and consequently upgrade our sector recommendation to “neutral” from “underweight”.
The two key factors that underpin the change in our sector view are: (i) easing macro headwinds; and (ii) the sector has underperformed the broader market and regional peers year-to-date (YTD).
While we think the eurozone is unlikely to avoid a recession in 2012, it appears to have pulled back from the brink of a meltdown in late-2011. The recovery in the US economy appears to be gaining momentum after a string of positive economic data in early 2012.
These suggest that the risk of a double-dip global recession is receding and outlook is becoming less gloomy. This has improved the odds for an upgrade to our real GDP growth forecast and the Malaysian economy could turn out to be stronger than our 2012 forecast of +3.6%.
YTD, the sector has underperformed the broader market and regional peers. Consequently, while Malaysian banks still trade at a premium to regional peers, the premium has narrowed. In addition, we think the slower sector earnings growth ahead has largely been priced in as our earnings forecasts are generally in line with consensus. Thus, we do not expect the sector to underperform the market too significantly and we see share price weaknesses as buying opportunities. When the economic upcycle begins, it is the banks that tend to take the lead in lifting the market to higher levels.
We make no change to our earnings forecasts. With the risk of a global recession receding, we have reverted to an earnings-based valuation methodology to derive our fair value estimates for the banks.
In addition, we have raised our target 2012 PER multiples to reflect lower risk premiums with the benchmark 2012 PER for the banks being 14 times, in other words in line with the target PER for the KLCI. Overall, we have raised our fair value estimates for the banks by between 6.5% and 30.5%.
We upgrade Malayan Banking Bhd to “outperform” from “underperform” while CIMB Group Holdings Bhd and AMMB Holdings Bhd are rated “market perform” (both “underperform” previously).
We make no changes in recommendation for the other stocks. Overall, we raise our sector call to “neutral” from “underweight”. — RHB Research Institute, Feb 13
This article appeared in The Edge Financial Daily, February 14, 2012.
