Banking counters slip on missed 3Q14 estimates and lower ROE targets

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KUALA LUMPUR (Dec 3): Banking counters tumbled in the morning session today with RHB Capital Bhd, Malayan Banking Bhd and Hong Leong Financial Group Bhd (HLFG) among losers on the local bourse.

This was on the back of the sector’s disappointing performance in 3Q14 and lower ROE targets in the banks' guidings, said analysts.

RHB Cap ended the morning session at RM7.85, dropping 3.09% or 25 sen,  Maybank has slipped 2.28% to RM9 while HLFG declined 1.07% to RM16.62.

AMMB Holdings Bhd fell 0.31% to RM6.43 while CIMB Group Holdings Bhd has dipped 2.07% to RM5.68. However, Affin Holdings Bhd has gained 0.32% to RM3.11 after climbing to as high as RM3.14 earlier.

RHB Research analyst David Chong said in a report today that the improvement was not as strong as expected, judging from the number of results that missed estimates as well as some banks guiding down further 2014 ROE targets.

The research house is maintaining its “neutral” rating on the sector with AMMB as its sole “buy” recommendation.

“Four out of the six banking stocks that we cover reported results that were in line with both our and consensus expectations, but Maybank and Affin both missed estimates. CIMB’s results were also below consensus expectations. Overall, 3Q14 underlying sector net profit rose 6% QoQ (-3% YoY) to RM5.6 billion,” said Chong.

He noted that Maybank lowered its 2014 ROE target to 13%-14% from 14% while CIMB said its 13.5-14% ROE target for 2014 would not be met. AMMB tweaked down its ROE target to 14% from 14.2-14.5%.

Chong added, “Post the reporting quarter, we estimate consensus trimmed sector net profit projections for FY14-15 by 3% per annum.”

Meanwhile, UOBKayHian banking analyst Keith Wee Teck Keong concurred that the sector’s 3Q14 earnings were generally disappointing, dragged down by contraction in non-interest income on the back of muted capital market activities and weak corporate banking loans growth.

Wee said, “We believe the sector as a whole lacks compelling catalysts with moderating loans growth rising loans-to-deposit ratio (LDR) will continue to weigh down on NIM from a funding cost angle, and upward reversal in provisions from a historical low which comes on the back of NPL stresses in certain loan segments.”

UOBKayHian is maintaining its “market weight” rating with Maybank as its top pick. It has maintained “sell” calls on CIMB and RHB Cap given the risk of further earnings disappointment and CIMB’s impending ROE-dilutive merger.

He reasoned that Maybank remained his top pick as it has a more balanced and diversified portfolio as well as a relatively attractive dividend yield in excess of 5%, which makes the stock a relatively safe haven amid the current challenging market environment.