CIMB Research Neutral on Malaysian banks, sees earnings improving

Published: Wednesday June 12, 2013 MYT 9:02:00 AM

CIMB Research Neutral on Malaysian banks, sees earnings improving

KUALA LUMPUR: CIMB Equities Research expects Malaysian banks' core net profit growth should rebound in the coming quarters, from its lethargic 1.9% on-year expansion in 1Q13, with improving market and business sentiment after general elections.

“But while loan growth and fee income should fare better, banks could remain dogged by: (1) lower net interest margins and (2) a continuous climb in their credit costs, which would limit the upside for earnings growth from our projected 9.9% for 2013,” it said on Wednesday.

The research house said based on these factors, it remained Neutral on the banking sector.

However, its concerns are balanced out by the stable and strong asset quality of Malaysian banks.

“We continue to identify some positives for the sector: (1) financing opportunities for projects under ETP; (2) undemanding P/Es averaging 11.9x for CY14; and (3) net dividend yields of about 3.9%,” it said.

CIMB Research projects net earnings growth of 9.9% for 2013, weaker than the 11.7% in 2012.

This would be supported by an increase of 11.3% for net interest income and 18.9% increase for non-interest income.

The research house said while topline growth would be jacked up by the consolidation of several acquisitions completed last year, consolidation could equally raise overheads by 10.1%. Loan loss provisioning is projected to jump by 72.9% in 2013, due to smaller write-backs / recoveries.