Ajiya, Seacera Group, Kawan Food, UEM Edgenta

SECTOR FOCUS OF THE DAY

Banking Sector  : 2H2017 outlook: Improving trend in banks’ provisions                OVERWEIGHT

We maintain our OVERWEIGHT stance on the banking sector. We project the sector's core earnings to grow by 8.6% YoY in 2017 from a flat earnings growth in 2016. The improvement in earnings is anticipated to be driven by higher non-interest income from a stronger capital market and lower provisions for loan losses. We maintain our loan growth expectation for the industry of 5.0-6.0% for 2017, supported by modest growth in retail loans especially in mortgage loans for affordable homes and improvement in business loans from infrastructure, higher exports and firmer commodity prices. In 2H2017, we continue to expect a mild pressure on banks' NIM, as banks are still offering higher rates for longer-term deposits in preparation for the implementation of net stable funding ratio requirement in 2018. For 2017, we project a lower NIM contraction of 3bps in 2017 compared to 4bps in 2016.

Our view is that liquidity for the sector is expected to gradually improve as seen from the recent stronger deposit growth in the sector with an improvement in momentum for business deposits. Also, banks are doing well in regards to CASA growth with CASA ratios continuing to trend higher. For 2H2017, we maintain our view that the asset yield of banks is expected to remain stable as the OPR is likely to be maintained at 3.00%. In 2H2017, we expect banks to provide more guidance on the impact of the implementation of MFRS 9. As highlighted in our earlier note, on day 1 of the implementation of the new accounting standard, any increase in provisions from MFRS 9 will be charged directly to banks' shareholders' funds, possibly with some impact on banks' CET1 ratios.

QUICK TAKE

Sime Darby : Sells land to PNB again        HOLD

                                                                          

STOCKS ON RADAR

Ajiya, Seacera Group, Kawan Food, UEM Edgenta

ECONOMIC HIGHLIGHT

Japan : Is online sales masking retail sales data?

NEWS HIGHLIGHTS

Kumpulan Jetson : Kumpulan Jetson wins RM919mil contract

Insurance sector : Competitive motor insurance premiums

Reach Energy : Reach Energy to boost oil output

Aeon Co : Aeon sells its Mahkota Cheras shopping mall

DISCLAIMER:

The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmInvestment Bank Bhd. Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmBank Group Bhd and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice.