Banking Sector : 4Q16 Earnings Report Card: A mixed bag NEUTRAL

SECTOR FOCUS OF THE DAY

Banking Sector : 4Q16 Earnings Report Card: A mixed bag              NEUTRAL

4Q16 results saw 5 out of 7 banks' earnings meeting expectations. The results of Public Bank, Alliance Financial Group, Hong Leong Bank and Maybank were within our expectation. AMMB’s earnings met consensus expectation. Core net profit of banks in 4Q16 declined 2.1% QoQ, largely due to higher provisions, despite an increase in operating income. Meanwhile, the cumulative core earnings of RHB Bank and CIMB Group were slightly below our expectation. For RHB Bank, it was due to lower-than-expected non-interest income brought about by the volatility in the capital and financial markets. On CIMB, there was a variance to our expected earnings after stripping out a one-off gain of RM150mil from the sale of 51.0% equity in Sun Life. 

Key highlights for 4Q16 results: i) stronger loan growth from the accelerated corporate loans of Maybank and CIMB; ii) NIM expansion by 7bps QoQ to 2.25% (annualised); iii) provisions remained elevated, largely contributed by larger capitalised banks, Maybank, CIMB and RHB Bank but there were no key surprises on credit cost which continued to fall within expectation; iv) upticks in GIL ratio for most banks contributed by some pressure of domestic retail loans (Public Bank, Hong Leong and AFG) as well as due to impairment in corporate loans of Maybank, CIMB and RHB Bank; v) loan loss cover for the sector continued to trend lower to 93.9% from  97.5%; vi) sector normalised CI ratio improved to 47.7%, largely driven by higher operating income rather than lower OPEX and vii) stronger traction of the sector’s CASA growth, leading to CASA ratio of 28.9%. 

We have trimmed the sector's core earnings growth for CY17/CY18 to 6.4%/8.2% from 6.8%/9.6% respectively, after adjusting our estimates for operating income and credit cost assumptions. Maintain NEUTRAL on the sector. CIMB (fair value: RM5.70/share) and RHB Bank (fair value: RM6.00/share) remain as our BUY calls. We continue to like these two stocks due to compelling valuations, decent ROEs and potentially further improvements to CI ratios from cost initiatives.

               

STOCKS ON THE  RADAR

Suria Capital Holdings,CAB Cakaran,Kellington Group,Telekom Malaysia

ECONOMIC HIGHLIGHTS

Malaysia : Expect exports to perform better

NEWS HIGHLIGHTS

Mah Sing Group : First tranche of issuance oversubscribed

Sime Darby : Moody’s still cautious of Sime Darby

Oil & Gas Sector : M’sian O&G services, equipment firms’ combined profit down 52% in FY15