Thursday, September 29, 2011

RHB Research downgrades banking sector to Underweight

KUALA LUMPUR: RHB Research has downgraded the Malaysian banking sector to Underweight from Neutral and said the worsening economic conditions that were not reflected in market valuations.

It said on Thursday, Sept 29 that banks were often viewed as proxies to the economy and share prices tend to underperform the market during a downturn.

The research house said share prices of banking stocks fell about 60% from their peaks during recent financial crisis while PER and P/BV valuations de-rated by an average of 54% and 52.5% respectively from peak levels.

It said if 2008-09 de-rating experience was repeated, valuations could fall by another 20% to 49% before reaching trough valuations in terms of PERs.

In terms of P/BV, another 15% to 57.6% compression could take place.

Currently the banking stocks are trading around mean valuations, it said.

'However, the derating experience above was notwithstanding the sector's net profits resilience during that period (2008: +6.5% year-on-year while 2009: +10.8% y-o-y).

"This suggest that fundamentals take a back seat during a downturn but we observe that efficiently run banks with sound asset quality tend to fare better than peers," it said.

The research house'' cut the fair values of Maybank, CIMB and AFG to RM6.84, RM 5.63 and RM2.83 respectively, and downgraded them from market perform to underperform.

RHB Research cut its fair value for AMMB to RM4.43 from RM6.15, while Affin's fair value was downgraded to RM2.12 from RM2.77.

Both banks were rated underperform by the research house.

Meanwhile, Hong Leong Bank was rated at market perform although its fair value was reduced from RM12.11 to RM9.7.

Only Public Bank was upgraded from market perform to outperform with a reduced fair value of RM12.54.

At 11:24am, Maybank fell 1 sen to RM7.96, CIMB lost 16 sen to RM6.65, Public Bank shed 2 sen to RM12.02, Hong Leong Bank down 2 sen to RM9.78, AMMB fell 5 sen to RM5.79, AFG fell 4 sen to RM3.16 and Affin lost 2 sen to RM2.43.


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