AmWatch - Banking Sector : Higher foreign holdings of MGS in June, 1 Aug 2014

SECTOR FOCUS OF THE DAY

Banking Sector : Higher foreign holdings of MGS in June              Neutral

Foreign shareholdings of MGS rose significantly in May 2014. Foreign holdings of MGS increased further by RM2.6bil or 1.8% MoM to RM147.3bil in June, from RM144.7bil in May. In terms of percentage of total outstanding MGS, the foreign holdings level had therefore increased to 46.7% in June 2014, vs. 46.3% in May 2014.

Excluding foreign holdings in MGS, we estimate the industry’s gross loan-to-adjusted-deposit ratio to be higher at 89.8% in June 2014, compared to May 2014’s 89.5% on the same adjusted basis. The official industry’s loan-to-deposit ratio (LDR) has climbed further to 85.8% in June 2014 from 85.4% in May 2014. This is the sixth consecutive month of LDR remaining above the 85% level – the highest in more than ten years since January 2004’s 85.9%.

Excess liquidity is almost halved if excluding foreign holdings in MGS. Overall excess net deposit (total deposit less loans) was broadly unchanged at RM291bil in June 2014 (May 2014: RM293bil). Excluding foreign holdings of MGS, we estimate excess net deposit (gross deposit less loans less foreign holdings in MGS) to be lower at RM144bil in June 2014 vs. RM148bil in May 2014.

On a more positive note, the 10-year MGS yield continued to ease to 3.89% in end-July, from 4.015% at end-June 2014, and 4.027% at end-May 2014. Based on latest industry overall data, we are maintaining our stance of a likely less ample domestic liquidity situation ahead given the high foreign holdings of MGS. Maintain NEUTRAL on the sector.

Others :

CIMB Group : Recent months likely to echo 1Q’s trends Hold

Banking Sector : Industry LDR inching up to a new recent high     Neutral

Economic Update : Moderate expansion in 3Q14 as discretionary income falls amid high inflation             

QUICK TAKES

Sime Darby : On the brink of buying NPBOL         Buy

Puncak Niaga : Signs water extraction agreement             Hold

Construction Sector : MMC-Gamuda JV set for RM4bil payment                Overweight

Plantation Sector : Key takeaways from IndoAgri’s Conference Call          Neutral

NEWS HIGHLIGHTS

Public Bank : Rights issue oversubscribed

Titijaya Land : Zooms in on ‘hot spots’ to boost sales

Eastern & Oriental : Incentive award, 3mil shares for employees and directors

Yinson Holdings : Upbeat on FPSO market, sees 10 to 12 new order annually