Wednesday, February 4, 2009

CIMB Research Lowers Rating On Banking Sector

CIMB (1023) Research has cut its rating on the local banking sector to "underweight" yesterday on lower expectations of loan growth and gross non-performing loan (NPL) ratios for the industry this year.

The cut was in view of the worsening economic situation and rise in local retrenchments. The research house now expects the banking industry to show loan growth of one to two per cent in 2009, from its previous forecast of a 3 to 4 per cent growth. It also raised its gross NPL ratio expectation to 7 per cent from 6 per cent previously.

"We downgraded the sector from 'neutral' to 'underweight' on the de-rating catalysts of slower loan growth, higher credit costs, weak investment banking income, lower-than-expected overseas contributions, and lower dividend payments," it said in a report yesterday. Its net earnings downgrades for banks ranged from about 2 per cent for Public Bank Bhd to between 16 per cent and 20 per cent for EON Capital Bhd.

CIMB now has an "outperform" call on just two banking stocks, namely Public Bank for its defensive qualities, and RHB Capital for benefits from its transformation programme.Its target prices for the two are RM11.10 and RM4.74, respectively. Meanwhile, AmResearch said yesterday it was keeping its "underweight" call on the banking sector as it believes the stocks will underperform the Kuala Lumpur Composite Index over the next six months, at least.

Investors will shy away from the sector due to concerns over the banks' earnings outlook, it said in a note to clients. It has projected the sector's earnings growth to contract by 6 per cent this year after an estimated growth of 6 per cent last year. The research house has a "buy" call only on Public Bank with a RM10.20 price target; and a "hold" on both Maybank and RHB Capital with price targets of RM5.50 and RM4.35, respectively.

Article from Business

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