PETALING JAYA: With indicators suggesting continued growth in lending in Malaysia, AmBank Research maintains its “overweight” rating on the banking sector.
Selectively, the brokerage favours RHB Bank Bhd, Public Bank Bhd , Alliance Bank Malaysia Bhd, BIMB Holdings Bhd and Malayan Banking Bhd (Maybank), ascribing “buy” calls for the five local banks, premised on various fundamentals.
In its report, AmBank Research explained that its “buy” call on RHB Bank, for instance, was due to the group’s attractive valuation and asset quality.
“We continue to like the stock due to an undemanding valuation, trading at 0.8 times to 2019 book value per share. Also, its asset quality is improving with provisions declining,” it said.
As for Public Bank, the brokerage said the bank’s strong asset quality and high level of regulatory reserves of RM2bil would provide a strong loan loss cover of 247.9%.
On Alliance Bank, AmBank Research cited earnings recovery. “We expect earnings to improve in financial year ending March 31, 2019, with a stronger revenue leveraging on the group’s transformation initiatives.
“Also, improved group earnings will be supported by a decline in operating expenditure as investment expenses for transformation is largely over while cost savings are expected to be realised from the completed mutual separation scheme and voluntary separation scheme as well as branch consolidation,” it said.
As for BIMB, AmBank Research liked the counter for the group’s consistent earnings and stronger profits ahead for insurance business under its subsidiary Syarikat Takaful Malaysia Bhd (STMB) coming from its tie-ups with banks for bancatakaful.
It also liked BIMB for the group’s surplus funds position and healthy claims ratio of STMB as well as decent return-on-equity (ROE) ratios of 12%-13% expected in financial years ending Dec 31, 2018, to 2019.
Lastly, for Maybank, the brokerage said diversified earnings, with a modest improvement in total income and higher dividend yields of 5%-6% compared to its peers, are its strong points.
“The group has been paying higher cash portion of its dividends with a smaller portion electable for the reinvestments into new shares under the dividend reinvestment plan.
“This is expected to result in a lesser dilution on its ROE ahead from the lower issuance of new shares for dividends reinvested.
“The group’s risk weighted assets have been improving while its capital position remained healthy,” it said.
The brokerage pegged its fair value for RHB Bank at RM6.10, Public Bank at RM26, Alliance Bank at RM5, BIMB at RM5.40 and Maybank at RM10.70.
Overall, data showed the industry’s loan growth had increased further to 5.3% year-on-year (y-o-y) in July 2018 from 5% y-o-y in June 2018, with a stronger growth in both household and non-household loans.
On a year-to-date basis, industry loan growth stood at an annualised 5%, which was in line with AmBank Research’s expectation for 2018.
Separately, industry deposit growth continued to accelerate in July 2018, expanding 5.8% y-o-y compared with 5.2% in the preceding month, supported by higher individual deposit growth, while growth in business deposits was slower.