EPF net buyer of banking stocks past fortnight

PETALING JAYA: The Employees Provident Fund (EPF), which controls RHB Capital Bhd (RHBCap), has been mopping up shares in other banking stocks the past two weeks even though equity strategists advise investors to avoid most banking stocks amid the prevailing uncertainties over global growth.

Filings showed the fund picking up over 32 million Malayan Banking Bhd (Maybank) shares since Sept 22. The EPF also bought 23 million shares of CIMB Group Holdings Bhd, over 18 million shares of AMMB Holdings Bhd and almost five million shares in Hong Leong Bank Bhd (HLB) over the same two-week period. It bought more Public Bank Bhd shares as well as smaller non-index banking stocks like Alliance Financial Group Bhd (AFG) and BIMB Holdings Bhd.

Several banking stocks took a beating of late and the number of shares that the EPF picked up are small relative to the banks’ respective sizeable share base. Apart from controlling about 45% of RHBCap, the EPF and its portfolio managers also own 11% of Maybank, 12.9% of CIMB, 14% of AMMB, 12.85% of HLB, 12.74% of AFG and 6.86% of BIMB.

Rumour mills were in overdrive last week that the EPF might consider a marriage between RHBCap and another niche lender, Malaysia Building Society Bhd (MBSB), in which it controls a 65.5% stake [See MBSB story on Page 6]. Speculation of a corporate exercise at MBSB was revived even as RHBCap and OSK Holdings Bhd sought Bank Negara Malaysia’s approval to start merger negotiations.

It would be interesting to see if the EPF has timed its purchases well.

Owing to its large foreign shareholding, CIMB, for instance, has lost over 16% of its value year-to-date to settle at RM7.11 last Friday — double the 8% that the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) lost over the same period. CIMB reached its 52-week high on Jan 5 at RM9.17 and low at RM6.56 on Sept 26. It remains to be seen if CIMB’s recent announcement that talks are under way to buy a stake in San Miguel Corp’s banking arm Bank of Commerce would provide any upside to the stock.

Maybank shares lost almost 4% year-to-date to end at RM8.18 last Friday. At the time of writing, most analysts remain neutral on the banking sector and have a “hold” recommendation on most counters amid the uncertain macroeconomic conditions.

Maybank Investment Bank Research said that during the 2008 global financial crisis, trough price-to-book valuations (PBV) averaged at between 0.7 times and 2.1 times versus 1.2 times and 2.5 times presently. In other words, banking stocks could still slide further if sentiment worsens.

It reckoned Public Bank would see a lower downside, with its gross dividend yields of over 5% providing some support.

“Public Bank and AMMB are slightly more defensive at this stage, given that current foreign shareholding levels are even lower than they were at the trough back in 2009,” said the research house.

Maybank-IB remains neutral on the sector and expects the top six banks in the country to grow by just 4.3% in 2012 compared with an estimated 9.5% in 2011. “Aggregate 2012 return on equity is now 15.5% versus 16.5% before,” it said.

While most analysts have “hold” calls on banking stocks, HwangDBS Research recommends a “buy” on AFG with a RM4.30 target price. AFG’s attractive valuation and strong earnings visibility make it a gem in the next sector consolidation, it said. The research house expects AFG’s loan growth to be driven by SME and commercial businesses, and retains a 9% loan growth target for FY12 ending March 31 despite it booked only 1% quarter-on-quarter growth in 1QFY11.

The EPF and its portfolio managers have not limited themselves to the banking sector. Filings showed the fund has been nibbling FBM KLCI component stocks like Axiata Group Bhd and Petronas Gas Bhd. It has also been accumulating non-component stocks like Hap Seng Plantations Bhd. Since Sept 21, it has bought close to one million shares or 0.125% of Hap Seng, increasing its stake to 6.12% as at Sept 30.