Friday, June 3, 2011

CIMB Research maintains overweight on banking sector

KUALA LUMPUR: CIMB Research has maintained its overweight rating on the Malaysian banking sector and said that overall, it still sees a favourable operating environment that will allow banks to achieve our projected net profit growth of 15.5% for 2011.

The research house said in a note Friday, June 3 that Malaysian banks' year-on-year (y-o-y) net earnings growth had been on a downtrend for four straight quarters though the momentum remained healthy at 13.7% y-o-y in 1Q11.

The positives that stood out during the quarter were (1) the plunge in credit costs, (2) swift loan growth of 13.2%, and (3) improving asset quality, it said.

However, CIMB Research said it was wary of the continuous margin compression arising from rife rate competition, which tempers the impact of strong loan growth.

'Overall, we still see a favourable operating environment that will allow banks to achieve our projected net profit growth of 15.5% for 2011.

'As such, we reaffirm our Overweight stance on the sector, premised on (1) higher investment banking income, (2) better growth prospects for overseas operations, (3) upside to our dividend forecasts, (4) partial write-back of collective assessments, and (5) M&A newsflow.

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