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Thursday, September 3, 2009

Glove demand with the emergence of new diseases such as H1N1

Growing international demand, projected at 140 billion pieces this year, are helping Malaysia’s glove makers defy the global economic downturn. Industry growth has been between 8 and 10 per cent in the past decade, but with the emergence of new diseases such as H1N1, demand usually spikes by 12-13 per cent.

Naturally, analysts are overweight on the sector although a recent run-up in the share prices of glove makers means most of them are already fully valued. For sure Malaysia’s glove makers will benefit from this even.

Wednesday, September 2, 2009

KLSE Banking Sector Building Up Momentum

Building up momentum
  • 2Q09 earnings largely above expectations with core earnings growth at 11% q-o-q and 7% y-o-y boosted by capital markets.
  • Momentum build-up with capital markets being the kicker to earnings in 2H09. Capital management would be a theme next year.
  • Top picks are AMMB and Public Bank. We also like Hong Leong Bank as a laggard quality pick.
2Q09 earnings largely above expectations.
Core earnings growth (excluding Maybank’s impairment charge) for 2Q09 stacked up well at 11% q-o-q and 7% y-o-y driven by strong Islamic banking and non-interest income, thanks to capital markets despite concerns that provisions and NPLs would spike up. Operational income remains healthy, while asset quality indicates stability despite rising provisions which we believe are pre-emptive.

Building up momentum.
We expect non-interest income to be the driving force for earnings in 2H09 given strong pipeline for debt and equity capital market activities. IPOs to date have been rather small in value but we expect such activities to pick up. The main kicker for IPO would be the re-listing of Maxis, expected by the year end. We also expect bond issuances to surge from now as bond pricing mechanisms have normalized. Stable and low interest rate environment makes it conducive for companies to seal low funding costs for longer term borrowings. AMMB and BCHB are best proxies for capital market plays. We prefer AMMB over BCHB for valuations.

Capital management in future.
We believe that asset quality would remain resilient as banks are in a much stronger position now in terms of capital, ability to manage NPLs and risk management. Banks are well capitalized while some banks seem overcapitalized. We expect banks to continue hoarding capital in a still
uncertain environment, with possible capital repayment and/or higher dividend payouts only next year. We believe BCHB, AMMB, Hong Leong Bank and Maybank could turn more active in capital management.

Selective plays.
Our top picks remain with AMMB for valuations and Public Bank for resilience and dividends. We suggest switching out of Maybank to BCHB for Indonesia exposure and also for the relative PBV-ROE parametric among big cap bank plays. Even Hong Leong Bank (although its shares are less liquid) stacks up better in terms of PBV-ROE compared to Maybank. We like Hong Leong Bank as a laggard quality play. For a small cap bank play, EON Cap looks attractive being the cheapest bank in our universe at 0.9x FY10 BV with limited downside risk.

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