Banks beat estimates as lower provisions, clawbacks help polish the books

Most lenders’ profits are not purely organic as lower provisions, clawbacks from bad debts and 1-off gains help polish books in a roller-coaster year

By NG MIN SHEN / Pic By TMR

Local lenders’ earnings for the last three months of 2018 were within market expectations with several banks posting record profits for the year.

Despite global economic uncertainties, trade tensions, market volatility and political concerns at home, banks performed up to expectations. Loans rose around 5.5% last year, while the country’s GDP increased 4.8%. Banks’ performances are closely linked to the economy.

But lenders did cautioned over compression in net interest margins (NIM) and heightened competition for deposits in 2019.

Profits of most lenders were not purely organic as lower provisions, clawbacks from bad debts and one-off gains helped polish the books in what had been a roller-coaster year for lenders.

The larger groups’ investment banking business also failed to shine due to the absence of large corporates deals, mergers and acquisitions, and sizeable listings.

Malayan Banking Bhd (Maybank), CIMB Group Holdings Bhd and RHB Bank Bhd posted new record earnings for the financial year ended Dec 31, 2018 (FY18). Public Bank Bhd, largely seen as the icon of the financial sector, continued its path of profitability while Affin Bank Bhd showed resilience.

Lenders whose financials end in March or June 2019 — Hong Leong Bank Bhd, AMMB Holdings Bhd (AmBank) and Alliance Bank Bhd — also managed to boost their earnings in the October-December 2018 period.

Hong Leong Investment Bank Bhd (HLIB) said earnings at CIMB, Affin and Alliance were within expectations, while Kenanga Investment Bank Bhd lowered its projected earnings for CIMB in FY19 by 2.4% on account of slower loans and NIM compression.

JP Morgan Securities (M) Sdn Bhd said Public Bank’s FY18 net profit beat its house projection, while AmBank’s earnings for the third-quarter ended Dec 31, 2018 (3QFY19) was 11% below its estimate, driven by mark-to-market losses due to volatility in the last quarter.

It also said Maybank’s 4Q earnings bested its estimates by 23%, adding that, however, it sees “this quarter’s beat as unsustainable as it is driven by episodic line items”. The research house believes the toll road acquisition by the government could be a negative risk on banks.

MIDF Amanah Investment Bank Bhd said RHB’s FY18 earnings were above expectations due to strong Islamic banking income growth and lower provisions, while Hong Leong’s net profit for the 2Q ended Dec 31, 2018 (2QFY19), was within projections.

It said CIMB’s earnings were roughly in line with core earnings estimates, although the research house lowered its forecast FY19 earnings by 2% for CIMB, on account of slower loans and NIM compression.

HLIB said Affin’s full-year net profit beat consensus forecasts on lower bad loan provisions, while Alliance’s results for 3QFY19 were in line with expectations.

Maybank

South-East Asia’s fourth-largest lender by assets beat estimates to post a record-high net profit of RM8.11 billion in 2018, up 7.8% from RM7.52 billion previously. The increase was mainly attributed to higher net interest income, Islamic banking income and net earned insurance premiums, coupled with lower operating expenditure (opex) and provisions.

Full-year revenue expanded 3.8% to RM47.32 billion from RM45.58 billion a year prior. Group gross loans grew 4.8% to RM517.3 billion as at end-2018.

As at press time, analysts surveyed by Bloomberg had 11 ‘Buy’, nine ‘Hold’ and two ‘Sell’ calls on shares of Maybank. The stock, which closed unchanged at RM9.54 yesterday, has declined 8.5% in the past 52 weeks, while the FTSE Bursa Malaysia KLCI lost 8.7%.

Maybank is currently trading at 13 times its estimated earnings per share (EPS) for the coming year. Analysts have a consensus one-year price target of RM10.33 on the stock.

Public Bank

Public Bank’s earnings climbed 2.2% to RM5.59 billion in FY18 from RM5.47 billion previously, supported by a 5.7% increase in revenue to RM22.04 billion from RM20.86 billion.

However, its 4Q net profit declined 5.4% to RM1.41 billion from RM1.49 billion previously. Malaysia’s second-largest bank by market capitalisation called 2018 a year “marked by a more moderate economic growth” in which banks were “faced with a more challenging business climate”.

Public Bank shares, which now trade at 17 times its anticipated EPS for this year — the highest among all domestic banks, closed at RM25 yesterday valuing the lender at RM97 billion.

Analysts have four ‘Buy’, 14 ‘Hold’ and five ‘Sell’ ratings on the stock, which has risen 8.8% in the last 52 weeks.

CIMB

CIMB, Malaysia’s second-largest bank by assets, posted earnings of RM5.58 billion in FY18, a 24.8% jump from RM4.48 billion previously as loan loss provisions declined 35.8%.

However, revenue was 1.4% slower at RM17.38 billion versus RM17.63 billion in FY17, as non-interest income fell 16% due to weaker capital markets in Malaysia and NIM compression in the bank’s Indonesia operations.

The group is expecting loan growth to register around 6% this year, boosted by an expected 6% to 7% loan expansion in its Malaysia and Indonesia businesses.

Currently, it trades at 11 times its estimated EPS. The stock has eight ‘Buy’ and 14 ‘Hold’ calls among analysts on Bloomberg, with just one ‘Sell’ call. It previously had 11 ‘Buy’ and 11 ‘Hold’ ratings.

Shares of CIMB closed four sen lower at RM5.64 yesterday.

RHB

RHB benefitted from a 22.8% YoY drop in allowances for credit losses on loans, underpinned by recoveries and the absence of a substantial impairment for O&G-related companies taken in 2017 (Pic: TMRpic)

RHB achieved its highest-ever net profit of RM2.31 billion in FY18, up 18.2% from RM1.95 billion recorded the year before, on stronger net fund-based income and non-fund-based income.

It also benefitted from a 22.8% year-on-year (YoY) drop in allowances for credit losses on loans, underpinned by recoveries and the absence of a substantial impairment for oil and gas (O&G)-related companies taken in 2017.

FY18 revenue was 6.9% higher at RM12.69 billion versus RM11.87 billion previously. Gross loans and financing rose 5.5% YoY to RM168.9 billion in 2018. The group has guided for loan growth of 5% in 2019, while it expects the industry to grow loans at between 5% and 5.5%.

Thirteen analysts are recommending ‘Buy’ on RHB shares, while five are guiding to ‘Hold’ and one to ‘Sell’. The stock, which closed at RM5.75 yesterday, has advanced almost 7% in the past 52 weeks. The bank is currently trading at 9.5 times its estimated EPS.

Hong Leong

Hong Leong’s earnings rose 0.6% to RM687.25 million in 2QFY19 compared to RM683.07 million the year before on loan book expansion, which offset lower net interest income.

It also gained from write-back of allowance for impairment losses on loans, advances and financing of RM68.6 million, lower opex and higher share of profit from associate companies.

Revenue, however, dropped 7% to RM1.14 billion from RM1.23 billion previously.

The group said last week it expects to exceed its 5% loan growth target for the financial year ending June 30, 2019, on continued momentum seen at its retail and business banking segments in January and February this year.

Hong Leong shares have two ‘Buy’, 13 ‘Hold’ and four ‘Sell’ recommendations among analysts. The stock closed unchanged at RM21.26 yesterday.

AmBank

AmBank’s earnings surged 59.8% in 3QFY19 helped by greater lending, lower cost base and an increase in recoveries (Pic: Bloomberg)

AmBank’s earnings surged 59.8% to RM349.88 million in 3QFY19 from RM218.98 million last year, helped by greater lending, lower cost base and an increase in recoveries. Its revenue jumped 6.5% to RM2.3 billion during the quarter, from RM2.16 billion recorded last year.

Net interest income rose 5.9% to RM1.95 billion on consistent loan expansion of loan base, although non-interest income saw a 4.7% dip to RM1.02 billion as market volatility and weaker sentiment resulted in lower contribution from markets, fund management and investment banking.

As at end-December 2018, the bank’s gross loans were up 4.2% to RM100.4 billion, while customer deposits increased 11.4% to RM106.8 billion.

Analysts have nine ‘Buy’, seven ‘Hold’ and three ‘Sell’ recommendations on the stock, which has advanced 10% in the past 52 weeks. AmBank shares ended yesterday’s trade at RM4.50.

Alliance

Alliance reported net earnings of RM148.93 million in 3QFY19, 21.5% better than RM122.55 million the year prior, as net interest income added 7.8% and opex fell by 8.6% or RM18.5 million.

Revenue climbed 7.8% to RM418.4 million from RM388 million registered previously, as gross loans and advances as at end-2018 were 6% stronger at RM41.4 billion.

Twelve analysts are rating the stock as “Buy”, while four are calling to “Hold” and one to “Sell”. Alliance shares closed at RM4.20 yesterday.

Analysts have a consensus one-year price target of RM4.64 on the stock. The bank now trades at 12 times its projected EPS.

Affin

Affin’s net profit jumped 20.4% to RM503 million in FY18 from RM417.8 million the year last, while revenue expanded 23% to RM1.92 billion compared to RM1.56 billion previously.

However, its 4Q18 net profit slid 15.21% to RM143.75 million, versus RM169.54 million reported a year earlier. This was attributed to higher interest expenses, lower net fee income and weaker commission income. Net interest income slipped 7.2%, while net income fell 15.2%.

Three analysts have pegged ‘Buy’ on the stock while five are calling to ‘Hold’, as the bank’s share price has fallen 6.1% in the past 52 weeks. Analysts have also lowered the consensus one-year price target by 2.6% in the past three months to RM2.47.