May 14, 2010

Malaysia OPR Hike - Maybank, RHBCap, Alliance to benefit

Another step forward 
•  There has been progress in the six key result areas under the Government Transformation Program (GTP)
•  Strong 1Q10 GDP growth data should provide near term optimism, and another Overnight Policy Rate (OPR) hike would be a positive signal
•  Banks are good proxies to the economic recovery; our high conviction picks, Maybank and RHB Capital, are also laggards and beneficiaries of a potential OPR hike. Recent share price weakness could be an opportunity to accumulate selected stocks


Since the launch of the GTP, there has been progress in the six key result areas: 32% reduction in street crime, 28% reduction in number of hardcore poor families, and an increase in public transport usage. The Government has started the process intended to spur growth in key sectors through the Economic Transformation Program (ETP). In June and July, there would be labs to generate ideas on how to spur key sectors of growth in order to achieve a higher level of income. 

DBS Economic Team expects strong 1Q10 GDP growth of 11%
y-o-y (2010: 8%). This bodes well for banks, as positive sentiment would drive demand for loans. We also believe it could boost demand for big-ticket items and drive consumer and business loans. We expect Maybank (Buy; TP RM9.00)’s loan portfolio to grow at 12-15% over FY10-12F, compared to industry average of 8-9%. Maybank remains an attractive laggard big cap. It is currently trading at 1.9x CY10 BV and 1.7x CY11 BV, the cheapest among Malaysian big cap banks.

Another hike in the OPR would also send a positive signal. Banks with a higher proportion of variable rate loans such as Maybank, RHB Capital (Buy; TP RM7.30), Alliance Financial Group (Buy, TP RM3.45) should benefit from the hike as BLR-based loans tend to be re-priced within a week of a rate hike. 

For yield-seeking investors, our recommendations are Axis REIT (Buy; TP: RM2.30), YTL Power (Hold; TP: RM2.30), Public Bank (Hold; TP: RM12.90), Telekom (Hold; TP: RM3.45), Digi.Com (Hold; TP: RM20.90) and PLUS Expressway (Buy; TP: RM4.00), where we expect dividend payouts to remain high.

by HWDBS