Monday, October 3, 2011

CIMB Research Neutral on banking sector

KUALA LUMPUR: CIMB Equities Research is staying Neutral on the banking sector in the light of heightened external risks.

It said on Monday, Oct 3 that a'' more cautious stance on the capital markets given the increased volatility could also dampen investment banking deal flow. 'Loan growth is set to soften and the margin squeeze will persist. On the flip side, we are still positive on (1) financing opportunities provided by projects under the Economic Transformation Programme (ETP), (2) the sector's undemanding CY12 P/E of 10.2x, and (3) attractive dividend yield of 5.5%,' it said.

CIMB Research said it was taking a more cautious stance in its stock picks as investors have turned risk adverse.

'Our top picks are the two big banks, Maybank and Public Bank, which offer superior defensive PROPERTIES [],' it said.

Maybank's dividend yield of 7%+ is the best among the Malaysian banks. Also, in the sector, the bank is the biggest beneficiary of the implementation of the ETP, which will help to lift income from its investment banking, commercial lending and insurance businesses, it said.

The research house added that as for Public Bank, its fundamentals are undeniably the best among the local banks, with the highest return on equity in the mid-20s, lowest gross impaired loan ratio of about 1% and the best operating efficiency.

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