Hong Leong: Daily Insight - 29 March

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1. HLIB Research PP 9484 /12/2012 (031413) Banking (OVERWEIGHT ) INDUSTRY INSIGHT Prudent asset quality Latest Trends  BNM released its 2017 annual report yesterday. Below are the key highlights for the banking sector.  Total loan slows down. Loans grew at moderate pace of +4.1%, reflected the slower growth of business segment (1.8%) whilst financing to household segment was steady at 5.1%. Business loan was impacted from higher repayment which out paced disbursement. Amid better corporate earnings, large business chose to pare down borrowings.  Higher earnings from NOII. Banking sector PBT grew strongly by 12.4% in 2017 amid the absenc e of large impairment and FX shocks. Both NII and NOII delivered strong results by +7.8% and +12.5% respectively. Growth in NII came from lower interest expense and higher growth of demand deposits. In contrast, NOII was underpinned by higher stockbroking income and financing-related activities.  Healthy capitalisation. Overall, banks continued to maintain a strong level of capitalisation, supported from better earnings and conservative earnings retention policies. Tier 1 grew healthily by +2.5% driven primarily by gaining popularity of dividend reinvestment plan and capital injections to strengthen balance sheet.  Increased participation from SME. Banks remain supportive of the SME sector despite the slowdown in the lending to S ME to 6% due to selected segments of construction and real estate sectors. BNM introduced a new fund for SME called BNM’s fund for SME with total allocation of RM10.1b. This fund is intended to better optimise utilisation of funds available for SME.  Asset quality remains intact. The improving domestic economy led to lower delinquencies in the banking s ector to 2.1% of total loans with provision well covered for bad loans at 114.8%. Nevertheless, the weakness in the oil and gas sector asset quality remained.  MFRS9. Due to increase in the provisioning as a result of forward looking impairment approach, BNM allows banks to offset the higher provision against the usage of regulatory reserve. With this, bank’s capital level will remain intact and the likehood of lower dividend payment is minimal.  Digital efforts. The usage of technology is now extended into SME segment with the int roduction of digital plat form and etouch points. This platform will allow SMEs with one stop online access point to financing and structured assistance. Risks  Deteriorating asset quality that will impact banks provisioning level and high household debt that will push consume sentiments lower. Rating OVERWEIGHT ()  We keep our OVE RWEIGHT stance on Banking in 2018 due to 1) improving ROE (led from recovery of earnings); (2) improving NOII income; (3) stable asset quality; and (4) Less severe of MFRS9 impact. Top Picks  Maybank (BUY, TP: RM11.00) and RHB (BUY; TP: RM6.00). Page 1 of 3 29March March 29, 2018 2018 Khairul Azizi Kairudin khairulazizi@hlib.hongleong.com.my (603) 2083 1714 Loan Growth % 16 14 12 10 8 6 4 2 0 05 06 07 08 09 10 11 12 13 14 15 16 17 System LDR & LFR % 120 LDR 100 LFR 80 60 40 20 0 05 06 07 08 09 10 11 12 13 14 15 16 17 Sector IL % % 12 10 Gross IL ratio Net IL ratio 14 12 10 8 8 6 6 4 4 2 2 0 0 05 06 07 08 09 10 11 12 13 14 15 16 17 29 March 2018
2. HLIB Research | Banking w ww.hlebroking.com Figure 1) Peer comparison Mkt Cap Price Target Affin ABMB AMMB (RM) (RM) (%) 4,663 6,610 2.40 4.27 2.70 4.30 11% 1% 17% 24% BIMB CIMB Maybank Public 11,875 6,706 66,147 3.94 3.96 7.17 4.70 4.70 7.90 114,319 92,521 10.50 23.96 11.00 21.50 RHB HL Bank 21,052 37,007 5.25 18.58 6.00 NR Average +/- (RMm) 9% 6% -8% 14% NR Rec. ROE ROA Yield FY18 EPS (sen) FY19 FY18 P/E (x) FY19 FY18 P/B (x) FY19 % % (%) HOLD HOLD 34.0 32.7 40.0 36.9 7.1 13.1 6.0 11.6 0.7 0.7 0.5 1.2 7.9 10.5 0.7 0.9 2.9 3.7 HOLD BUY BUY 40.5 39.4 56.9 44.9 42.0 62.2 9.7 10.1 12.6 8.8 9.4 11.5 0.7 3.4 1.4 0.7 1.4 1.3 7.6 14.7 9.6 0.9 1.0 0.9 4.5 3.5 3.5 BUY HOLD 75.4 149.4 80.4 159.7 13.9 16.0 13.1 15.0 1.5 2.5 1.5 2.3 10.6 15.3 1.0 1.4 5.2 2.5 BUY NR 53.7 120.9 58.5 130.4 9.8 15.4 9.0 14.2 0.9 1.6 0.9 1.6 8.7 10.5 0.8 1.2 2.3 2.5 63.0 68.3 12.0 11.0 1.7 1.4 11.8 1.1 3.5 HLIB Page 2 of 3 29 March 2018
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As of 29 March 2018, the analyst, Khairul Azi zi Kairudin who prepared this report, has interest in the following securities covered in this report: (a) -. Published & Printed by Hong Leong Investment Bank Berhad (10209-W) Level 28, Menara Hong Leong No. 6, Jalan Damanlela, Bukit Damansara 50490 Kuala Lumpur Tel 603 2083 1800 / 603 2083 1714 Fax 603 2083 1766 Equity rating definitions BUY TRADING BUY HOLD TRADING SELL SELL NOT RATED Positiv e recommendation of stock under coverage. Expected absolute return of more than +10% ov er 12-months, with low risk of sustained downside. Positiv e recommendation of stock not under coverage. Expected absolute return of more than +10% ov er 6-months. Situational or arbitrage trading opportunity . Neutral recommendation of stock under coverage. Expected absolute return betw een -10% and +10% over 12-months, with low risk of sustained downside. Negativ e recommendation of stock not under coverage. Expected absolute return of less than -10% ov er 6-months. Situational or arbitrage trading opportunity. Negativ e recommendation of stock under coverage. High risk of negative absolute return of more than -10% ov er 12-months. No research coverage and report is intended purely for informational purposes. Industry rating definitions OVERWEIGHT NEUTRAL UNDERWEIGHT Page 3 of 3 The sector, based on weighted market capitalization, is expected to have absolute return of more than +5% ov er 12-months. The sector, based on weighted market capitalization, is expected to have absolute return betw een –5% and +5% over 12-months. The sector, based on weighted market capitalization, is expected to have absolute return of less than –5% ov er 12-months. 29 March 2018