Running its own race
Positive vibes from the regulators and government
Recent developments suggest current administration is acknowledging
the urgency to address some of the long-standing and pertinent issues.
One case in point – ANZ was permitted to raise its stake in AMMB to
24.6% (from 19.2%). As more regulatory impediments are removed, we
expect more foreign direct investments, auguring well for the economy.
The coast is clear on credit quality
A sharp credit deterioration scenario is unlikely to play out, aided by
coordinated and targeted assistance by the government. Notably,
positive results have emerged: 1) loan applications and approvals are on
the rise; and 2) asset quality remains resilient. After cutting our
assumptions on provisions, raising non-interest income and loan growth,
we raise our earnings forecasts and TPs across the board. Given the
improved earnings backdrop, we now use P/E metric to derive our TPs
for our universe with the exception of Maybank (asset impairment risks)
and EON Cap (risk of more kitchen sinking).
Valuation still attractive; sector upgraded to POSITIVE
We upgrade BCHB, AMMB and EON Cap to BUY, while downgrade
Maybank and HL Bank to REDUCE. Despite recent price run-up, banks’
P/E multiples remain attractive – below historical averages. Given the
conservative consensus estimates, there is room for earnings upgrades,
setting the stage for another round of re-rating.
Investment thesis for our universe
We pick BCHB as our top sector pick given its high operating leverage
that drives its much stronger EPS CAGR of 21.9% over FY08-11. AMMB
also presents an attractive investment proposition: at 12.2x FY11 EPS,
we think the positive structural changes brought about by ANZ are
underappreciated. EON Cap, we believe, remains a medium-term M&A
target. PBB remains a decent investment proposition that combines
modest earnings growth prospects and defensive attributes. HL Bank’s
weaker earnings growth prospects fail to make the cut. Maybank still
faces headwinds following the three badly timed and expensive
acquisitions.