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Not expecting CM to derail CY22 NP growth

  • Factoring in CM and a 25bp OPR hike, our projected NP for the sector is cut by 1.4% for CY21F and 6.5% for CY22F but raised by 2.3% for CY23F.
  • Following the earnings revisions, we still project core NP growth of 9% in CY21F and 2.4% in CY22F (vs. 10.9% and 8.1% respectively previously).
  • We stay Overweight on banks as our expected continuation in the earnings recovery in CY22F is intact even after factoring in CM.
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Projecting core NP growth CY22F despite Cukai Makmur

The investment theme for our Overweight call is an expected earnings recovery in 2021F to 2022F. However, the major concern for the sector was that the Cukai Makmur (CM) proposed under the Budget 2022 would derail banks’ net profit (NP) growth in CY22F. On a positive note, following our recent earnings adjustments to factor in CM and a 25bp hike in overnight policy rate (OPR) in mid-2022, we still project a core NP growth of 2.4% for banks in CY22F, although this had been cut from a growth rate of 8.1% previously.

Core NP forecasts lowered for CY21-22F but increased for CY23F

In our reports dated 5 Nov, 8 Nov and 9 Nov 2021, we adjusted our earnings forecasts to factor in CM and a 25bp hike in OPR. This led to (1) a cut of 1.4% in our projected CY21F core NP for the sector (due to CM), (2) a reduction of 6.5% in CY22 core NP forecasts (as the negative impact from CM would more than offset the positive impact from OPR hike), and (3) a 2.3% rise in CY23F core NP forecasts (lifted by OPR hike).

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Slower but still positive net profit growth in CY22F

Following the earnings revisions, we cut our projected core NP growth from 10.5% to 9% for CY21F and from 8.1% to 2.4% for CY22F. We are encouraged that our expected earnings recovery in 2021-22F remains intact after factoring in CM, despite projecting core NP to expand at slower rates. In addition, we raised our projected growth in core NP for banks from 7.6% to 17.7% for CY23F, due to (1) lower base for CY22F core NP (dragged down by CM), and (2) the positive impact of OPR hike on CY23F earnings.

Reiterate Overweight

We reiterate our Overweight rating on Malaysian banks given the potential re-rating catalyst from the continuation in earnings recovery in CY22F. We project a core NP growth of 2.4% for banks in CY22F even after factoring in the negative impact from CM. The expected earnings catalyst for CY22F would be our projected 7% increase in net interest income and 4.8% drop in loan loss provisioning.

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No change in the ratings for banks

Following the earnings adjustments, we kept our recommendations for all Malaysian banks under our coverage, including the Add ratings for Public Bank, Hong Leong Bank, Maybank (these are our top picks), RHB Bank and AMMB as well as Reduce calls for Affin Bank and Alliance Bank.