Banking sector inexpensive, go for selective stock picking

PETALING JAYA: Despite negative developments in the banking sector and a modest growth outlook for banks, investors can draw comfort from the sector’s inexpensive valuations.

HLIB Research said the sector is trading at -1.5 standard deviation (SD) to its five-year mean price-to-book (P/B), retaining its neutral call and advocating selective stock picking rather than blanket exposure to the sector.

“Those that favour exposure to this sector have to be selective. We like banks that give above average dividend yields, still eking out healthy growth, and valuations got bashed down to -2SD and trough P/B valuations.”

Its preferred pick is Malayan Banking Bhd (Maybank). Other buys are RHB Bank Bhd, Alliance Bank Malaysia Bhd and BIMB Holdings Bhd.

MIDF Research opined that banking stocks in general are currently undervalued given its fundamentals remains intact. Hence, it is maintaining the positive stance on the banking sector at this junction.

The banking system saw a lower loan growth of 3.9% year-on-year (yoy) in July 2019 compared with the 4.2% in June.

Despite the weak business sentiment, Affin Hwang Capital noted that the loan disbursement of RM102.4 billion in July 2019 remained higher than the average monthly disbursement from 2014-18 of RM93 billion.

Business loans grew at a more subdued pace of 2.5% yoy in July (from 3.4% in June 2019), partially affected by loan repayment activity in the finance/insurance sector, wholesale/retail trade and manufacturing sectors.

Household loan growth was up 4.7% yoy in June (June: 4.9% yoy) driven by residential mortgages and personal financing.

“We are currently reviewing our 2019 loan growth target of 5%, amidst cautious business and consumer outlook in 2019. On the other hand, downside risks are largely cushioned by the broad-based economy while over the longer term, we expect consumer sentiment to gradually improve and drive consumption spending,“ said Affin Hwang.

It said the banking system liquidity remains healthy and ample, and expects banks’ funding costs to ease over the next six months following the Overnight Policy Rate cut, as most banks have an average fixed deposits’ maturity of between six to nine months.

“We expect the overall banking system NIM to edge down by 6bps in 2019 to 2.22%, stemming from weak asset yields and overall higher funding cost.”

Affin Hwang Capital maintained its neutral sector stance, with RHB and Aeon Credit Service (M) Bhd as its top picks.

“We maintain our neutral sector view as we foresee a sector core earnings growth of 1.0% yoy in 2019, followed by 4.3% yoy in 2020.”

HLIB said with limited positive catalysts to spur stronger borrowing demand, it has toned down 2019 loans growth estimate to 4-4.5% from 4.5-5%.

The research house believes sustaining net interest margins (NIM) would remain as an uphill challenge, given that the slower loans growth environment should encourage banks to engage in price-based competition to chip share away from one another.

source https://www.thesundaily.my/business/banking-sector-inexpensive-go-for-selective-stock-picking-DE1327764