Reforms, better earnings boost Malaysia finance stocks

Reforms, better earnings boost Malaysia finance stocks
Published: 2009/08/21

Bank stocks are still a 'buy' but investors have to be selective, says the chief investment officer at Kurnia Insurans

BETTER than expected earnings and the initiation of government-led reforms have given Malaysian bank stocks a big lift, helping the leading ones in the sector outperform the broader market.

Bumiputra-Commerce has risen 77 per cent so far this year, AMMB is up 65 per cent and Maybank has climbed 40 per cent. That compares with the main index's 33 per cent rise and Singapore-based DBS's 50 per cent and Oversea-Chinese Banking Corp's 57 per cent gains.

But recent economic indicators have been mixed. Central bank data show non-performing loans may have bottomed, staying at 2.2 per cent in June for the seventh month in a row, but loans growth has decelerated to 8.3 per cent year-on-year in June from 8.9 per cent in May.

"Bank stocks are still a "buy" but we have to be selective," says Pankaj Kumar, who manages about US$540 million (US$1 = RM3.53) of assets as chief investment officer at Kurnia Insurans Bhd, a local insurance company.

Kumar said he would buy shares of Bumiputra-Commerce, the holding company of Malaysia's No.2 lender and top deal maker CIMB, but avoid Maybank as the lender still faces headwinds from its acquisitions in Pakistan and Indonesia.

"We still see value in bank stocks as the (deal) pipeline continues to be big for fund-raising," said David Ng, who helps manage about US$1 billion of assets as chief investment officer at HwangDBS Investment Management.

Analysts said bank stocks have jumped as earnings expectations ratcheted up in tandem with the recovering capital markets, with most banks delivering April-June results that exceeded expectations due to healthy loan growth and a moderate bad-debts increase.

Bumiputra-Commerce posted a net profit of RM663 million for the second quarter, exceeding forecasts by 15.3 per cent, while AMMB's first-quarter net profit of RM258.2 million was 21.1 per cent above estimates.

BNP Paribas expects the Malaysian government to announce "more favourable policy initiatives" in the second half of 2009 and 2010, after foreign investors shunned the country, and in particular the banking sector.

The Malaysian government has lifted equity ownership restrictions in a bid to inject life into capital markets and draw in foreign investment as well as liberalised sections of the banking and fund management industry.

"As more regulatory impediments are removed, we expect more foreign direct investments," said BNP analyst Ng Wee Siang.

"(We are) still negative on Malaysian banks. The ongoing deceleration of loans growth reinforces our negative view on the sector," said Tan See Ping, analyst at Cazenove Asia.

Tan expects loan and fee income growth to slow sharply and provisions for bad debts to rise as the economy contracts in 2009.

Malaysia's government has forecast that the economy may shrink as much as 5 per cent in 2009. A Reuters poll of 11 economists in July forecast a contraction of 3.2 per cent.

"Our top sell is Public Bank. The current economic contraction and slowdown of loan growth looks particularly negative for (the bank)," said Tan. - Reuters

Comment:  What can one say.  Often the analysts' forecasts are just that.  No one can predict the future with certainty.