KUALA LUMPUR (June 4): Bargain hunting for Malaysian banking stocks continued with Affin Bank Bhd, trading at a price-to-book value of barely 0.4 times, leading the climb this morning.

Affin Bank jumped as much as 8.09% or 14 sen to RM1.87 shortly after the opening bell today. This was followed by Hong Leong Financial Group Bhd (HLFG), which soared as much as 6% or 90 sen to RM15.90, while Hong Leong Bank Bhd gained 5.73% or 86 sen to RM15.88. 

Gains were also seen in other banking stocks, with BIMB Holdings Bhd climbing as much as 4.47% or 16 sen to RM3.74, while AMMB Holdings Bhd rose as much as 4.31% or 14 sen to RM3.39.

Meanwhile, CIMB Group Holdings Bhd was up as much as 3.39% or 13 sen to RM3.97, RHB Bank Bhd jumped as much as 2.80% or 15 sen to RM5.50, Public Bank Bhd gained as much as 2.76% or 48 sen to RM17.86, and Malayan banking Bhd (Maybank) rose as much as 2.76% or 22 sen to RM8.20. 

Banks trading below their price-to-book value included  — based on the order of lowest valuation — Affin Bank (0.4 times), AMMB (0.54), Alliance Bank (0.67), CIMB (0.71), RHB Bank (0.84) and HLFG (0.8379) (see table).

Despite the rallies today, all banking stocks were trading downward from a year-to-date (YTD) perspective, no thanks to the Covid-19 pandemic which had taken a large toll on economic activity. CIMB lost the most, plunging 24.08% from RM5.15 in December 2019, followed by BIMB (-16.36%), AMMB (-15.35%), Public Bank (-12.65%), Hong Leong Bank (-13.18%) and HLFG (-11.83%).

Generally, the banks' performance still lagged behind the benchmark FBM KLCI index's YTD performance, down by 2.49% to 1,549.19 points from 1,588.76 last Dec 31.

The banking stocks were bogged down due mainly to the current harsh economic climate that would give rise to higher non-peforming loans and slower loan growth to drive earnings. Nonetheless, some quarters saw that the current share prices had already factored in the possible bad news.  

Kenanga Research, which has downgraded the sector to "neutral", said the banking system will be hard-pressed given the downside risks as economic uncertainties continue to prevail given the inconclusiveness of the growing pandemic.

“The reopening of the economy and the recent OPR (overnight policy rate) cut have helped cleared some overhang for the sector, but the recent development of HP (hire purchase) interest will likely put further near-term pressure on banks’ income and this, by our calculations, could be meaningful,” the research house wrote in a note dated May 8. 

“[As such] we have cut our FY20-21 (financial years 2020 and 2021) net profit forecasts by up to 20% for the banks under our coverage,” it added. 

Similarly, Affin Hwang Capital Research expected a deterioration in banks’ earnings and non-performing loans to spike up following the pandemic outbreak. In addition, it said additional relief measures by Bank Negara Malaysia (BNM) had put pressure on banks’ liquidity and funding.

“At this juncture, we foresee 2020 sector earnings per share (EPS) potentially declining by up to 24.3% year-on-year (y-o-y) and a modest recovery of 3.9% y-o-y in 2021 EPS,” Affin Hwang Capital Research said in a note distributed on Monday.

The research house maintained its "underweight" call on the sector, not discounting the possibility of deterioration in asset quality of the domestic banking system due to potential business closures and rising unemployment.

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