“We continue to OVERWEIGHT the sector, predicated on the potential re-rating catalysts of (1) strong earnings growth, (2) increase in investment banking income, (3) strong growth potential for the overseas operations of the larger banks, and (4) potential GP write-backs,” it said on Friday, April 2
CIMB Research said AMMB Holdings still tops its league table for the Malaysian banks as we believe that its transformation programme should help it raise its ROE from 11.5% in FY3/10 to 14% in FY12. For the longer term, management is gunning for even higher targets of 17-20%, which will be one of the best among the local banks.
The potential share price triggers include (1) value-add from ANZ, (2) benefits from the group revamp, (3) better-than-expected pipeline for investment banking deals to increase fee income from this area, and (4) new growth avenue from the derivative and foreign exchange businesses.
CIMB Research’s other picks for the sector is Public Bank and Affin Holdings.
It said Public Bank has the best fundamentals among the Malaysian banks, as reflected by its superior ROE in the mid-20s, lowest net NPL ratio of below 1% and swift loan growth in the teens. Potential re-rating catalysts include (1) even stronger Roes of 28-29% for FY10-11, (2) increased contributions from Greater China, and (3) stronger-than-expected non-interest income growth, primarily from wealth management businesses.
Affin Holdings’ financial performance will be driven by the robust loan growth and margin expansion. It is trading at an undemanding single-digit CY10 P/E of 8.6 times.
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