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8/9/2019 Banking Sector Update : Jun 10 System Data YoY Loan Growth At A High - 02/08/2010
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Table 1: Sector Valuations
PER (x) EPS gwth (%) P/ BV (x) ROE (%) Net Div Yld (%)Price FV Rec FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY 11
Maybank 7.74 9.66 OP 15.1 12.8 35.7 18.1 2.0 1.9 14.0 15.2 2.8 3.4CIMB 7.40 8.40 OP 15.5 13.1 20.2 17.9 2.4 2.2 16.1 17.4 1.3 1.3
Public Bank - L 12.16 13.75 OP 14.8 13.3 11.8 11.8 3.4 3.0 24.2 23.8 3.7 4.0
AMMB^ 5.15 6.60 OP 12.9 11.3 14.8 14.6 1.5 1.3 11.9 12.3 2.7 3.1AFG^ 2.92 3.40 OP 12.0 11.0 25.2 9.1 1.4 1.3 12.2 12.0 2.2 2.2Affin 3.05 3.55 OP 11.1 10.3 10.5 7.6 0.9 0.9 8.6 9.0 2.1 2.1
EON Cap 6.96 7.92 MP 12.9 11.4 9.4 13.2 1.2 1.1 10.0 10.4 1.4 1.4HLB 9.01 9.20 MP 15.1 15.1 (4.7) 0.2 2.2 2.0 14.8 13.4 2.0 2.0
RHB Cap* 6.49 NR NR 10.5 9.3 10.7 12.9 1.5 1.3 14.6 14.8 2.8 3.0
Sector Wt. Avg 14.5 12.7 19.5 14.4 2.3 2.1 16.3 16.9 2.5 2.7
*Not under coverage. Forecasts based on IBES estimates ^FY10-11 valuations refer to those of FY11-12
Jun 10 banking system loan growth unabated up 12.5% yoy.
According to BNMs statistics, Jun 10 loan growth stood at +12.5% yoyvs. +11.7% yoy in May 10, the strongest monthly growth rate achievedthus far this year. Growth was largely broad-based with the household
and business segments up +12.9% yoy (May 10: +12.5% yoy) and+7.2% yoy (May 10: +6.1% yoy) respectively.
Leading indicators still firm despite BNM normalising interest rate.Total applications were broadly stable mom but absolute loan approvalsaccelerated to RM33.3bn (+24.2% yoy) vs. RM28bn (+11.2% yoy) in May
10 with the pick-up mainly from the business segment (+35.6% yoy;+37.3% mom). Juns statistics suggest that demand for loans has notbeen dampened by the two hikes in Mar and May in the Overnight PolicyRate (OPR) by BNM. While loan growth ahead may moderate due to a
higher base effect and/or a pick-up in capital market fund raisingactivities, the strong Jun numbers have prompted us to raise our 2010loan growth projection for the banking system to +10-11% from +9%.
Industry asset quality stable mom. Absolute NPLs as at end-Jun 10was broadly stable mom. Consequently, Jun 10 system-wide three-month
gross and net non-performing loan (NPL) ratios remained at 3.5% (May 10: 3.5%) and 2.2% (May 10: 2.2%) respectively. while loan losscoverage (LLC) improved slightly to 93.1% (May 10: 91.7%). Ascompared to end-Mar 10, absolute NPLs as at end-Jun 10 rose 5.3%
with the increase largely due to the business segment while NPLs for thehousehold segment declined by 8.3%. This trend could potentially be due
to the adoption of FRS139.
ALR higher but spread lower. Commercial banks ALR in Jun 10
trended higher to 5.05% (May 10: 5.01%) but spread fell to 2.3% (May10: 2.33%) as the overnight interbank rate also trended higher to 2.75%(May: 2.68%), possibly in anticipation of another 25bps hike in OPR.
LD and capital ratios. Jun 10 loan-deposit (LD) ratio increased to
81.4% (May 10: 80.5%). Industry capital ratios remained broadly stablemom and healthy with the core capital ratio and RWCR at 12.9% (May
10: 13.1%) and 14.8% (May 10: 15%) respectively.
Investment case. On the whole, Juns numbers help support our
positive stance on the sector as especially given that loan growth appearsbroad based, i.e. both the business and household segments did well. Thiswould be further aided by the three OPR hikes that have taken place thus
far and taken together, these factors would help support earningsmomentum in 2H2010. Thus, we are maintaining our Overweight ratingon the sector. We like Maybank, CIMB, AMMB and Public Bank for an
exposure to large cap banking stocks. Affin and AFG are also rated asOutperform while EON Cap and HL Bank are both rated Market Perform.
Corpora te H igh l ights
Sec to r Upda te
BankingJun 10 System Data YoY Loan Growth At A HighM
alaysia
Recom : Overweight
(Maintained)
Chart 1. Industry NPL
24,000
29,000
34,000
39,000
44,000
49,000
54,000
59,000
64,000
69,000
Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10
(RMm)
1
3
5
7
9
11
13
15
17(%)Gross NPL (LHS) Gross NPL ratio (RHS) Net NPL ratio (RHS)
Chart 2. Industry LLC
35
40
45
50
55
60
65
70
75
80
85
90
95
100
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
(%)
David Chong, CFA(603) 9280 2186
Please read importan t disclosures at the end of this report.
M
ARKET
DATELINE
PP
7767/09/2010(025354)
2 August 2010
RHB ResearchInstitute Sdn BhdA member of theRHB Banking GroupCompany No: 233327 -M
8/9/2019 Banking Sector Update : Jun 10 System Data YoY Loan Growth At A High - 02/08/2010
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2 August 2010
Page 2 of 13
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Industry Loan Growth And Leading Indicators
Jun 10 banking system loan growth unabated up 12.5% yoy. According to BNMs statistics, Jun 10
loan growth stood at +12.5% yoy vs. +11.7% yoy in May 10, the strongest monthly growth rate achieved thus
far this year. This was largely due to higher disbursements during the month, which, in absolute terms, came
mainly from the business segment (manufacturing and finance, insurance and business services segments). In
terms of yoy growth rate, the household segment saw outstanding loans accelerate further to +12.9% yoy (vs.
May 10: +12.5% yoy) with the key areas of growth still led by the purchase of residential and non-residential
properties, passenger cars and personal use. Due to higher disbursements, business loans outstanding alsoexpanded at a higher growth rate of 7.2% yoy (vs. May 10: +6.1% yoy). However, outstanding loans for the
SMEs sub-segment stayed flat yoy. MoM basis, loan growth was +1.7% vs. +1.4% mom in May 10, which
represents the 13th consecutive month that mom growth was in positive territory.
Monthly applications broadly stable but approvals up. Jun 10 loan applications, in absolute terms, were
broadly stable mom at RM53.1bn (+7% yoy) as absolute loan applications for both the business and household
segments held steady mom. Absolute loan approvals, however, accelerated to RM33.3bn (+24.2% yoy) vs.
RM28bn (+11.2% yoy) in May 10 with the pick-up mainly from the business segment (+35.6% yoy; +37.3%
mom). Loan approvals for the SMEs sub-segment also improved further to +57.3% and +46.5% yoy and mom
respectively (May 10: +7.6% yoy) while loan approvals for households held steady mom at RM16bn (+13.8%
yoy).
Leading indicators still holding firm despite BNM normalising interest rate. Juns statistics suggest that
demand for loans has not been dampened by the two hikes in Mar and May in the Overnight Policy Rate (OPR)by BNM. While loan growth ahead may moderate due to a higher base effect and/or a pick-up in capital market
fund raising activities, the strong Jun numbers have prompted us to raise our 2010 loan growth projection for
the banking system to +10-11% from +9%.
Generally positive for banks. On the whole, Juns numbers help support our positive stance on the sector as
especially given that loan growth appears broad based, i.e. both the business and household segments did well.
This would be further aided by the three OPR hikes that have taken place thus far and taken together, these
factors would help support earnings momentum in 2H2010. As mentioned previously, a potential source of
earnings surprise we see ahead could come from stronger-than-expected loan growth and/or NIM. While our
loan growth assumptions for the larger banks are in line with managements targets, our assumptions for some
of the smaller banks (e.g. EON Cap and Affin) are 3-6%-pts lower than targets. Apart from loan growth, the
impact of the OPR hikes should also be more meaningful in 2H. Generally, our sensitivity analysis suggests that
most of the banks (except for AMMB and Maybank) should be beneficiaries from a rate hike and this would also
help cushion competitive pressures on NIMs.
Table 2 : Loan Composition By Type Of Customers As At End-Mar 10
Maybank CIMB Grp PBB* RHB AMMB HLB EONC Affin AFG
% % % % % % % % %
Loan composition
- Individuals 50.1 46.9 62.2 42.4 61.0 67.3 60.1 42.6 56.8
- SMEs 13.9 14.8 18.0 15.4 10.9 8.9 20.9 27.9 20.5
- Corporates & others 36.0 38.3 19.8 42.2 28.1 23.8 19.0 29.5 22.7
*As at end-Jun 10
Source : Companies
Chart 3 : Annual Loan Growth Chart 4 : Loan Growth Breakdow n
400
450
500
550
600
650
700
750
800
850
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
(RMbn)
2
4
6
8
10
12
(%)Loan (RMbn - LHS) Loan Growth (% yoy - RHS)
0
2
4
6
8
10
12
14
16
18(%) Business Household
Source: BNM Source: BNM
8/9/2019 Banking Sector Update : Jun 10 System Data YoY Loan Growth At A High - 02/08/2010
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Chart 5 : Total Loans & Growth (Residential Property) Chart 6 : Total Loans & Growth (Non-Residential Property)
150
160
170
180
190
200
210
220
230
Apr
2006
2007 2008 2009 2010
(RMbn)
7
8
9
10
11
12
(%)Residential property (LHS) % yoy (RHS)
40
45
50
55
60
65
70
75
80
85
Apr
2006
2007 2008 2009 2010
(RMbn)
11
12
13
14
15
16
17
18
19
20
21
22
23(%)
Non-residentia l property (LHS) % yoy (RHS)
Source: BNM Source: BNM
Chart 7 : Total Loans & Growth (Transpo rt Vehicles) Chart 8 : Total Loans & Growth (Per sonal Use)
95
100
105
110
115
120
125
130
Apr
2006
2007 2008 2009 2010
(RMbn)
3
4
5
6
7
8
9
10(%)Transport vehicles (LHS) % yoy (RHS)
20
22
24
26
28
30
32
34
36
38
40
42
44
Apr
2006
2007 2008 2009 2010
(RMbn)
6
8
10
12
14
16
18
20
22(%)Personal use (LHS) % yoy (RHS)
Source: BNM Source: BNM
Chart 9 : Total Loans & Growth (Wo rking Capital) Chart 10 : Total Loans & Growth (Credit Card)
160
170
180
190
200
210
220
230
Apr
2006
2007 2008 2009 2010
(RMbn)
-2
0
2
4
6
8
10
12
14
16
(%)Working capital (LHS) % yoy (RHS)
15
17
19
21
23
25
27
Apr
2006
2007 2008 2009 2010
(RMbn)
5
7
9
11
13
15
17
19
21
(%)C redit card (LHS) % yoy (RHS)
Source: BNM Source: BNM
Chart 11 : Total Loans & Growth (Purchase of Securities) Chart 12 : Total Loans & Growth (Others)
15
20
25
30
35
40
45
Apr
2006
2007 2008 2009 2010
(RMbn)
-40
-20
0
20
40
60
80
100
120
140
(%)Purchase of securities (LHS) % y oy (RHS)
20
25
30
35
40
45
50
Apr
2006
2007 2008 2009 2010
(RMbn)
-40
-30
-20
-10
0
10
20
30
40
50
60(%)
Others (LHS) % yoy (RHS)
Source: BNM Source: BNM
8/9/2019 Banking Sector Update : Jun 10 System Data YoY Loan Growth At A High - 02/08/2010
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Chart 13 : Indu stry Loan Application s* Chart 14 : Indu stry Loan Applications Breakdow n
15
20
25
30
35
40
45
50
55
2005 2006 2007 2008 2009 2010
(RMbn)
-40
-20
0
20
40
60
80
(%)3-mth moving average (RMbn - LHS) % yoy (RHS)
-50
0
50
100
150
2005 2006 2007 2008 2009 2010
(%) yoy
Business
Zero %
Household
*Based on 3-month moving average
Source: BNMSource: BNM
Chart 15 : Indu stry Loan Approvals* Chart 16 : Indu stry Loan Approvals Breakdow n
9
11
13
15
17
19
21
23
25
27
29
31
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
(RMbn)
-40
-30
-20
-10
0
10
20
30
40
50
60
70
80
(%)3-mth moving average (RMbn - LHS) % yoy (RHS)
-70
-20
30
80
130
180
2005 2006 2007 2008 2009 2010
(%) yoyBusiness
Zero %
Household
*Based on 3-month moving averageSource: BNM
Source: BNM
Industry Asset Quality
Industry asset quality stable mom. Absolute NPLs as at end-Jun 10 was broadly stable mom.
Consequently, Jun 10 system-wide three-month gross and net non-performing loan (NPL) ratios remained at
3.5% (May 10: 3.5%) and 2.2% (May 10: 2.2%) respectively. while loan loss coverage (LLC) improved slightly
to 93.1% (May 10: 91.7%).
As compared to end-Mar 10, absolute NPLs as at end-Jun 10 rose 5.3% with the increase largely due to the
business segment while NPLs for the household segment declined by 8.3%. This trend could potentially be due
to the adoption of FRS139. AMMB and AFG will be reporting their quarterly results based on FRS139 next month,
in addition to the five other banks that already moved to FRS139 for the quarter-ended Mar 10. To recap, under
FRS139, loans that are individually significant (significance threshold varies from bank to bank) are tested for
impairment and loans to SMEs and corporate tend to be of larger value and hence, would cross the significance
threshold and assessed individually.
The corporate sector has, historically, had a higher rate of default as compared to the household segment. In
addition, loans to businesses and corporates are typically given out on a clean basis. Thus, banks with higher
exposures to the SME and corporate segments could now also be harder hit with individual impairment
allowances when credit conditions deteriorate, as compared to banks with a larger proportion of retail
customers. This is because FRS139 requires the entire shortfall between the present value of estimated future
cash flows and the carrying amount to be recognised immediately, as compared to the previous guideline of
staggered provisioning based on the number of months in arrears. Mitigating this impact is that the total
absolute provisioning required may now be lower as compared to previously as the estimated future cash flows
from the impaired loans are now taken into account (previously, provisioning made on the shortfall between
outstanding balance and realisable collateral value).
But improvement in economic conditions could see banks with larger corporate exposure benefitmore. On the flipside, banks with a larger exposure to the corporate loan segment could stand to benefit more
during an upcycle. As corporate return to stronger footing and/or such loans are restructured, there could be
8/9/2019 Banking Sector Update : Jun 10 System Data YoY Loan Growth At A High - 02/08/2010
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impairment writebacks. In addition, banks with a higher proportion of corporate loans could mean better
investment banking relationships, resulting in stronger fee-based income when economic conditions are better.
Chart 17 : Indu stry Asset Quality*
24,000
29,000
34,000
39,000
44,000
49,000
54,000
59,000
64,000
69,000
Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10
(RMm)
1
3
5
7
9
11
13
15
17(%)Gross NPL (LHS) Gross NPL ratio (RHS) Net NPL ratio (RHS)
* Reflects 3-month NPL classification method and GP8 adjustment (excluding-IIS) In addition, beginning Jan 2010, loans are reported
based on FRS139. The adoption of FRS139 is based on the FYE of the banks.
Source: BNM
Chart 18 : Indu stry LLC: Stronger Chart 19 : Indu stry Absolute Gross NPL & Net NPL Ratio
35
40
45
50
55
60
65
70
75
80
85
90
95
100
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
(%)
(3,000)
(2,000)
(1,000)
-
1,000
2,000
Jun-02
Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
(RMm)
1
3
5
7
9
11
(%)Gross NPL - mom chg (RMm) Net NPL ratio (%)
Source: BNM Source: BNM
Chart 20 : Gross NPL Ratio: Property Residentia l Chart 21 : Gross NPL Ratio: HP
7000
8000
9000
10000
11000
12000
13000
14000
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
(RMm)
3
4
5
6
7
8
9
10(%)Gross NPL (RMm - LHS)
Gross NPL (% - RHS)
1500
2000
2500
3000
3500
4000
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
(RMm)
1.0
2.0
3.0
4.0
(%)
Gross NPL (RMm - LHS)
Gross NPL (% - RHS)
Source: BNM Source: BNM
8/9/2019 Banking Sector Update : Jun 10 System Data YoY Loan Growth At A High - 02/08/2010
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Chart 22 : Gross NPL Ratio: Construction Chart 23 : Gross NPL Ratio: Property Non-Residen tial
1300
1800
2300
2800
3300
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
(RMm)
7
9
11
13
15
17
19
21(%)
Gross NPL (RMm - LHS)
Gross NPL (% - RHS)
1800
2300
2800
3300
3800
4300
4800
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
(RMm)
2
3
4
5
6
7
8
9
10
11
12(%)
Gross NPL (RMm - LHS)
Gross NPL (% - RHS)
Source: BNM Source: BNM
Chart 24 : Gross NPL Ratio: Pers onal Use Chart 25 : Gross NPL Ratio: Credit Card
1000
1100
1200
1300
1400
1500
1600
1700
1800
1900
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
(RMm)
3
4
5
6
7
8
9
(%)Gross NPL (RMm - LHS)
Gross NPL (% - RHS)
500
550
600
650
700
750
800
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
(RMm)
2.0
2.5
3.0
3.5
4.0
(%)Gross NPL (RMm - LHS)
Gross NPL (% - RHS)
Source: BNM Source: BNM
Chart 26 : Gross NPL Ratio: Working Capital Chart 27 : Gross NPL Ratio: Purchase of Securities
10000
11000
12000
13000
14000
15000
16000
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
(RMm)
5
6
7
8
9
10(%)
Gross NPL (RMm - LHS)
Gross NPL (% - RHS)
450
950
1450
1950
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
(RMm)
1
2
3
4
5
6
7
8
9
10
11(%)
Gross NPL (RMm - LHS)
Gross NPL (% - RHS)
Source: BNM
Industry Deposit Growth And LD Ratio
Jun 10 deposits inched up slightly mom ... Absolute amount of deposits as at end-Jun 10 increased by
RM19bn mom (May 10: RM3.2bn) or +9% yoy (May 10: +RM3.2bn mom or +9% yoy) with the increase
reflecting higher placements by banking institutions in the form of NIDs and short-term money market deposits
as well as higher FX deposits and higher Islamic banking system deposits by business enterprises.
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leading to LD ratio rising further. Given that mom loan growth outpaced deposit growth, Jun 10 loan-
deposit (LD) ratio increased to 81.4% (May 10: 80.5%). As compared to historical LD ratio levels, the systems
liquidity remains ample.
LD ratios of individual banks generally healthy. Generally, apart from AMMB and EON Cap, the LD ratio for
the individual banks appears to be at comfortable levels. While AMMB has the highest LD ratio among the banks,
we do note that, historically, this ratio tends to be >100% mark. As for EON Cap, 1Q deposit growth stood at a
healthy annualised rate of 13.2% thanks to innovative deposit campaigns and this should help support loan
growth, if sustained.
Chart 28 : Annual Deposit Growth Chart 29 : LD Ratio
400
500
600
700
800
900
1000
1100
2002 2003 2004 2005 2006 2007 2008 2009 2010
(RMbn)
0
5
10
15
20
25(%)Deposit (RMbn - LHS) Deposits Growth (% yoy - RHS)
70%
75%
80%
85%
90%
95%
100%
105%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: BNM Source: BNM
Table 3 : Loan/Deposit Ratio As At End-Mar 10
Maybank CIMB Grp PBB* RHB AMMB HLB EONC Affin AFG
% % % % % % % % %
LD Ratio 84.8 80.6 83.2 82.6 94.0 54.2 93.8 80.5 87.4
*As at end-Jun 10
Source : Companies
Industry Average Lending Rate (ALR)
In terest spread down as interbank rates rose further. Commercial banks ALR in Jun 10 trended higher to
5.05% (vs. 5.01% in May 10) as interest-rate sensitive assets continue to be repriced following Mays OPR
increase. However, the overnight interbank rate also trended higher to 2.75% (May: 2.68%) possibly in
anticipation of another 25bps hike in OPR and as a result, interest spread decreased slightly to 2.3% (May 10:
2.33%).
Chart 20: Industry ALR & Spread Chart 21 : Indu stry Capital Ratios
4.5
5.0
5.5
6.0
6.5
7.0
7.5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
(%)
2.0
2.5
3.0
3.5
4.0
4.5
(%)Avg. Lending Rate (LHS)
Interest Spreads (RHS)
10.0
11.0
12.0
13.0
14.0
15.0
16.0
9298 99 00 01 02 03 04 05 06 07 08 09 10
(%)
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.514.0
(%)
RWCAR (LHS) Core capita l r atio (RHS)
Source: BNM Source: BNM
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Industry Capital Ratios
Capital ratios broadly stable. Industry capital ratios remained broadly stable mom and healthy with the core
capital ratio and RWCR at 12.9% (May 10: 13.1%) and 14.8% (May 10: 15%) respectively.
RISKS
The risks include: 1) slower-than-expected loan growth; 2) deterioration in asset quality; and 3) changes inmarket conditions that may adversely affect investment portfolio.
CHANGES TO FORECASTS
No changes to our earnings forecasts for the banks.
VALUATIONS AND RECOMMENDATION
Banking sector the best proxy to the economic recovery. In our view, the banking sector represents the
best proxy to the economic recovery and we continue to believe that the sector will help take the lead in lifting
the market to higher grounds. We expect this to be underpinned by factors such as: 1) earnings growth gaining
momentum; 2) valuations remain decent relative to the market and historical levels; and 3) relatively lowforeign shareholding levels.
Maintain Overweight on the sector. Overall, we maintain our Overweight stance on the sector. For an
exposure to the big cap banking stocks, we like Maybank, CIMB Group, Public Bank and AMMB while AFG and
Affin are our picks within the smaller market capitalisation segment. HL Bank and EON Cap are both rated
Market Perform.
Table 4 : Valuation Bases
Company
Fair Value
(RM/ share) Valuation Methodology
Affin 3.55 12x CY11 EPS, 3x discount to reflect its smaller market capitalisation
AFG 3.40 13x CY11 EPS, 2x discount to reflect its smaller market capitalisation
AMMB 6.60 Benchmark 15x CY11 EPS
CIMB Group 8.40 Benchmark 15x CY11 EPS
EON Cap 7.92 13x CY11 EPS, 2x discount to reflect its smaller market capitalisation
HL Bank 9.20 Benchmark 15x CY11 EPS
Maybank 9.66 Benchmark 15x CY11 EPS
Public 13.75 Benchmark 15x CY11 EPS
Source: RHBRI
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Table 5 : Industry NPLs
NPLs (3-month recognition, inclusive of II S) NPLs (3-month recognition, excluding II S)
Month Gross NPLs Net NPLs Gross Ratio Net Ratio Gross NPLs Net NPLs Gross Ratio Net Ratio
(RMm) (RMm) (%) (%) (RMm) (RMm) (%) (%)
Jul-06 53,483 30,247 9.2 5.4 46,212.0 30,247.0 8.0 5.4
Aug-06 53,338 29,617 9.1 5.3 45,933.0 29,617.0 7.9 5.3
Sep-06 52,219 28,557 8.9 5.1 44,943.0 28,557.0 7.7 5.1Oct-06 52,010 28,538 8.8 5.0 44,810.0 28,538.0 7.7 5.0
Nov-06 51,743 28,110 8.7 4.9 44,556.0 28,110.0 7.6 4.9
Dec-06 50,391 27,360 8.5 4.8 43,394.0 27,360.0 7.4 4.8
Jan-07 50,276 26,476 8.4 4.6 43,212.0 26,476.0 7.3 4.6
Feb-07 50,111 26,824 8.4 4.7 43,071.0 26,824.0 7.3 4.7
Mar-07 49,631 25,645 8.3 4.4 42,645.0 25,645.0 7.2 4.4
Apr-07 49,303 25,174 8.2 4.3 42,325.0 25,174.0 7.1 4.3
May-07 49,086 24,871 8.1 4.3 42,189.0 24,871.0 7.0 4.3
Jun-07 46,641 23,969 7.6 4.1 40,200.0 23,969.0 6.6 4.1
Jul-07 46,505 23,412 7.4 3.8 40,022.0 23,412.0 6.4 3.8
Aug-07 45,583 22,389 7.2 3.6 39,116.0 22,389.0 6.2 3.6
Sep-07 44,074 21,676 6.8 3.5 37,980.0 21,676.0 5.9 3.5
Oct-07 43,912 21,349 6.8 3.4 37,772.0 21,349.0 5.9 3.4
Nov-07 43,288 20,666 6.6 3.3 37,127.0 20,666.0 5.7 3.3
Dec-07 41,763 20,011 6.5 3.2 35,732.0 20,011.0 5.6 3.2
Jan-08 41,524 19,648 6.4 3.1 35,445.0 19,648.0 5.5 3.1
Feb-08 41,751 20,189 6.4 3.2 35,628.0 20,189.0 5.5 3.2
Mar-08 40,440 19,028 6.1 3.0 34,722.0 19,028.0 5.3 3.0
Apr-08 39,530 18,482 5.9 2.9 33,823.3 18,482.3 5.1 2.9
May-08 37,871 18,414 5.6 2.8 32,497.0 18,414.0 4.9 2.8
Jun-08 36,977 17,550 5.4 2.6 31,725.0 17,550.0 4.7 2.6
Jul-08 36,712 17,091 5.3 2.5 31,430.0 17,091.0 4.6 2.5
Aug-08 36,815 17,187 5.2 2.5 31,436.0 17,187.0 4.5 2.5
Sep-08 36,059 16,660 5.1 2.4 30,683.0 16,660.0 4.3 2.4
Oct-08 36,330 16,878 5.1 2.4 30,973.0 16,878.0 4.4 2.4
Nov-08 35,886 16,780 5.0 2.4 30,611.0 16,780.0 4.3 2.4
Dec-08 34,983 15,889 4.8 2.2 29,803.0 15,889.0 4.1 2.2
Jan-09 34,856 15,811 4.8 2.2 29,701.0 15,811.0 4.1 2.2
Feb-09 34,882 15,864 4.8 2.2 29,717.0 15,864.0 4.1 2.2
Mar-09 33,592 16,033 4.6 2.2 28,873.0 16,033.0 4.0 2.2
Apr-09 33,706 16,076 4.6 2.2 28,975.0 16,076.0 4.0 2.2
May-09 33,991 15,934 4.6 2.2 29,162.0 15,934.0 4.0 2.2
Jun-09 33,312 15,791 4.5 2.2 28,653.0 15,791.0 3.9 2.2
Jul-09 33,180 15,057 4.4 2.1 28,510.0 15,057.0 3.8 2.1
Aug-09 33,579 15,541 4.4 2.1 28,824.0 15,541.0 3.8 2.1
Sep-09 33,890 15,949 4.4 2.1 29,130.0 15,949.0 3.8 2.1
Oct-09 33,488 15,606 4.4 2.1 28,786.0 15,606.0 3.8 2.1
Nov-09 29,736 14,538 3.8 1.9 25,841.0 14,538.0 3.4 1.9
Dec-09 28,693 13,788 3.7 1.8 24,934.0 13,788.0 3.2 1.8
Jan-10* 28,222 13,203 3.6 1.7 25,949.0 13,203.0 3.3 1.7
Feb-10 29,445 14,796 3.7 1.9 27,395.0 14,796.0 3.4 1.9Mar-10 29,160 15,367 3.6 1.9 27,410.0 15,367.0 3.4 1.9
Apr-10 29,272 17,040 3.6 2.1 27,980.0 17,040.0 3.5 2.1
May-10 30,060 18,100 3.7 2.2 28,862.0 18,100.0 3.5 2.2
Jun-10 29,973 17,718 3.6 2.2 28,874.0 17,718.0 3.5 2.2
*Beginning Jan 2010, loans are reported based on FRS139. The adoption of FRS139 is based on the FYE of the banks.
Source : BNM
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Table 6 : Key Earnings Data
Maybank CIMB Grp PBB - L AMMB HLB EONC Affin AFG
Pre-provision Profit (RM m)
FY09a 4,762 4,875 4,000 1,986 1,189 585 670 377
FY10F 6,276 5,862 4,465 2,176 1,205 673 720 621
FY11F 6,713 6,648 4,871 2,375 1,261 728 752 683
Net Profit (RMm)
FY09a 2,181 2,807 2,517 1,009 905 341 372 301
FY10F 3,634 3,373 2,872 1,201 893 373 411 377
FY11F 4,293 3,977 3,212 1,377 894 422 442 412
Net Profit Growth (% )
FY09a (25.5) 43.8 (2.5) 17.2 22.0 155.0 27.0 31.6
FY10F 66.7 20.2 14.1 19.1 (1.4) 9.4 10.5 25.2
FY11F 18.1 17.9 11.8 14.6 0.2 13.2 7.6 9.1
Adjusted Net Interest Margins (% )
FY09a 2.79 3.43 2.38 3.11 2.04 2.65 2.72 2.82
FY10F 2.85 3.42 2.36 2.98 1.98 2.69 2.67 2.83
FY11F 2.83 3.40 2.35 3.00 1.96 2.63 2.62 2.85
Non-Interest Income As % of Total Income
FY09a 30.8 35.1 22.6 31.3 26.0 19.9 23.9 7.4
FY10F 35.3 33.6 22.1 33.8 27.1 20.2 23.6 23.6
FY11F 34.8 33.3 21.7 33.8 26.8 20.5 23.7 23.7
Cost-to-Income Ratio (% )
FY09a 53.9 54.0 34.5 49.0 42.4 58.9 47.4 59.5
FY10F 50.2 50.6 33.4 47.8 43.3 57.4 46.9 47.0
FY11F 50.0 48.7 32.8 47.0 43.4 56.6 47.0 45.9
Loan-to-Deposit Ratio (% )
FY09a 87.4 79.5 79.2 94.0 51.5 92.9 78.7 87.4FY10F 86.7 76.3 82.1 93.3 50.5 93.1 77.5 90.9
FY11F 86.8 75.9 83.6 92.6 50.5 93.3 76.8 94.5
Loan Growth (% )
FY09a 13.5 20.9 18.8 12.0 0.8 8.3 12.9 10.0
FY10F 8.0 10.4 14.0 6.4 5.0 10.2 8.3 9.2
FY11F 7.0 9.4 10.0 7.2 7.1 9.2 8.1 9.1
Gross NPL Ratio (% )
FY09a 3.5 5.0 1.0 2.8 2.2 3.8 3.7 3.8
FY10F 3.2 4.5 0.9 2.5 2.2 3.3 2.9 3.5
FY11F 3.0 4.0 0.9 2.2 2.1 2.8 2.6 3.3
Net NPL Ratio (%)
FY09a 1.5 1.8 0.8 1.5 1.3 2.3 2.2 1.8
FY10F 1.4 1.6 0.8 1.5 1.3 2.0 1.7 1.7
FY11F 1.3 1.4 0.7 1.4 1.3 1.6 1.6 1.6
Loan Loss Cover (% )
FY09a 112.9 90.8 172.4 99.5 109.1 78.5 81.5 94.4
FY10F 117.0 93.4 181.0 102.9 110.2 85.6 91.9 94.9
FY11F 121.1 96.8 191.6 107.8 112.4 94.5 96.7 98.2
RWCAR (%)
FY09a 15.0 14.4 14.2 15.8 16.5 14.4 13.8 15.7
FY10F 15.6 13.6 14.5 16.1 17.3 14.3 13.3 14.7
FY11F 15.8 13.3 14.3 16.3 17.8 14.2 12.8 15.1Source : RHBRI for companies with FYE Mar, FY09, FY10F and FY11F refers to FY10, FY11 and FY12 respectively
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Table 7 : Valuation Summary
Maybank CIMB Grp PBB - L AMMB HLB EONC Affin AFG
Bloomberg Ticker MAY MK CIMB MK PBK MK AMM MK HLBK MK EON MK AHB MK AFG MK
Recommendation OP OP OP OP MP MP OP OP
EPS (sen)
FY09a 37.8 39.8 73.3 34.7 62.5 49.2 24.9 19.5
FY10F 51.3 47.8 82.0 39.9 59.6 53.8 27.5 24.4
FY11F 60.7 56.3 91.7 45.7 59.7 60.9 29.6 26.6
EPS growth (% y-o-y)
FY09a (29.0) 37.5 (4.7) 9.8 22.1 155.0 27.0 30.6
FY10F 35.7 20.2 11.8 14.8 (4.7) 9.4 10.5 25.2
FY11F 18.1 17.9 11.8 14.6 0.2 13.2 7.6 9.1
PER (x)
FY09a 20.5 18.6 16.6 14.8 14.4 14.1 12.3 15.0
FY10F 15.1 15.5 14.8 12.9 15.1 12.9 11.1 12.0
FY11F 12.8 13.1 13.3 11.3 15.1 11.4 10.3 11.0
BVPS (RM/ s)
FY09a 3.52 2.88 3.12 3.20 3.63 5.13 3.17 1.90
FY10F 3.81 3.07 3.60 3.52 4.02 5.59 3.24 2.10
FY11F 4.16 3.39 4.04 3.90 4.41 6.12 3.31 2.32
P / BV (x)
FY09a 2.2 2.6 3.9 1.6 2.5 1.4 1.0 1.5
FY10F 2.0 2.4 3.4 1.5 2.2 1.2 0.9 1.4
FY11F 1.9 2.2 3.0 1.3 2.0 1.1 0.9 1.3
ROE (%)
FY09a 9.9 15.0 24.5 11.6 16.7 10.1 8.1 10.6
FY10F 14.0 16.1 24.2 11.9 14.8 10.0 8.6 12.2
FY11F 15.2 17.4 23.8 12.3 13.4 10.4 9.0 12.0
ROE / PBV (x)
FY09a 4.5 5.8 6.3 7.2 6.7 7.4 8.4 6.9
FY10F 6.9 6.7 7.2 8.1 6.6 8.1 9.1 8.8
FY11F 8.2 8.0 7.9 9.3 6.6 9.2 9.8 9.6
ROA (%)
FY09a 0.2 1.3 1.2 1.1 1.2 0.8 1.0 1.0
FY10F 1.1 1.3 1.3 1.2 1.1 0.8 1.0 1.2
FY11F 1.2 1.4 1.3 1.3 1.0 0.8 1.0 1.2
Net DPS (sen)
FY09a 6.0 9.3 41.3 9.4 18.0 0.0 6.4 6.4
FY10F 21.8 9.3 45.0 14.0 18.0 10.0 6.4 6.4
FY11F 26.3 9.3 48.8 16.0 18.0 10.0 6.4 6.4
Net dividend yield (% )FY09a 0.8 1.3 3.4 1.8 2.0 0.0 2.1 2.2
FY10F 2.8 1.3 3.7 2.7 2.0 1.4 2.1 2.2
FY11F 3.4 1.3 4.0 3.1 2.0 1.4 2.1 2.2
For companies with FYE Mar, FY09, FY10F and FY11F refers to FY10, FY11 and FY12 respectively
Source : RHBRI
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IMP ORTANT DISCLOSURES
This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment BankBerhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law.The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and maydiffer or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is notto be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated hereinin any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associatedpersons may from time to time have an interest in the securities mentioned by this report.
This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectivesof persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluateparticular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment orstrategy will depend on an investors individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents acceptsany liability for any loss or damage arising out of the use of all or any part of this report.
RHBRI and the Connected Persons (the RHB Group) are engaged in securities trading, securities brokerage, banking and financing activities as well as providinginvestment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHBGroup may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equitysecurities or loans of any company that may be involved in this transaction.
Connected Persons means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,officers, employees and agents of each of them. Investors should assume that the Connected Persons are seeking or will seek investment banking or otherservices from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRIs previous reports.
This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflectinformation known to, professionals in other business areas of the Connected Persons, including investment banking personnel.
The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation basedupon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
The recommendation framework for stocks and sectors are as follows : -
Stock Ratings
Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.
Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% ormore over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to takeon higher risks.
Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- five percentage points) over the next 6-12 months.
Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.
Chart 22: Affin Technical View Poin t
Affin began its uptrend since last Mar, when the 10-
day SMA cut above the 40-day SMA to trigger a
medium-term bullish outlook on the chart.
The uptrend lasted for 13 months until it reached a
high of RM3.29 in Apr 2010.
The stock subsequently retreated and fell to below
the RM3.08 significant level.
Although it has penetrated the RM3.08 level on few
occasions in the past few months, the stock has
never sustained its position at above the threshold.
Given the flat closing at RM3.05 on last Friday,
added with the marginal cut of the 10-day SMA to
below the 40-day SMA, the stock is likely to
continue its sideways drift at below the RM3.08
level in the near term, in our view.
As the momentum indicators are still showing the
mixed reading, we do not expect a rechallenge of
RM3.08 anytime soon.
In fact, on increased selling momentum, the stock
could fall further towards the key support level at
RM2.70, if it records more negative candles in the
near term.
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Industry/Sector Ratings
Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.
Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.
Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.
RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommendedsecurities, subject to the duties of confidentiality, will be made available upon request.
This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever forthe actions of third parties in this respect.