Can We Still Buy Banking Stocks?

The anlaysts are saying that the banking sector will furnish a slate of good H2 results.

So are the banking stocks fairly priced or can we still get in and make some good money?

As to be expected, Malaysian banks turned in solid report cards in the second quarter, pointing to full year that could possibly  see record earnings for the industry as loans continue growing and provisions fall.

Analysts believe earnings, which probably came in at the highest ever for the April-to-June period, will continue to grow on a quarter-to-quarter basis this year.

Earnings will continue to be on an uptrend in the next two quarters on the back of loan expansion, especially on the retail side, and better fee-based income, said banking analyst Wong Chew Hann of Maybank Investment Bank Research.

"It should be another year of record earnings," she remarked.


The bellwether top banker Nazir Razak of CIMB concurred.

"This is most likely to be a record year underpinned by continuing loan expansion and as capital markets continue to be active," he said. CIMB is the second largest lender.

The industry's loan growth has so far had been better than expected, coming in at 12.5 per cent as at end June from a year ago.


Some analysts are now looking to raise their loan growth forecasts for the year. Wong plans to raise hers to around 12 per cent compared to about 10 per cent before.

The industry seems to be in good health in terms of asset quality and banks also appear to have much better control over costs, analysts noted.

The only concern they had for the industry was the recent creeping in of much stiffer competition in the mortgage and hire-purchase loan segments, as well as in customer deposits, which could hurt margins.

Even foreign banks have been in the action, going all out to grab higher market shares in those areas by offering attractive rates and innovative packages.

"That puts pressure on margins but the OPR (overnight policy rate) hikes earlier may help cushion the pressure somewhat," said David Chong, an analyst at RHB Research Institute.

On the whole, banks' second quarter earnings were either in line with analysts' expectations, or slightly better than expected.

Analysts cited top lender Malayan Banking Bhd (Maybank) as having the best results as well as the best dividends of the nine local banking groups.

An analyst from a foreign research house felt that Alliance Financial Group Bhd, the smallest banking group, was the most disappointing in terms of loan and deposit growth.

Banks like Maybank and CIMB saw earnings from their overseas operations, especially Indonesia, come in strongly for the quarter.

TNB: Surprise Mini Bonus Issue

The surprise bonus issue announced by Tenaga Nasional Bhd (TNB) will likely drive short-term interest in the company’s shares given the presently buoyant market conditions, analysts say.

“Empirical evidence suggests that shareholders and investors tend to view bonus issues positively,” an analyst with a foreign research house told StarBizWeek.

“It is a sign that the management is confident in its ability to service a larger equity base or, in other words, in its capacity to generate more profits and give out dividends on all those shares in the future,” she explained.

TNB on Thursday announced a bonus issue of up to 1.12 billion shares on the basis of one for every four existing shares held at an entitlement date to be determined later. In its filing to Bursa Malaysia, TNB also said it planned to increase its authorised share capital to RM10bil comprising 10 billion shares from RM5bil currently to accommodate the bonus issue.

The bonus issue would not fundamentally change analysts’ earnings forecasts for TNB.

Nevertheless, earnings per share and the company’s share price would naturally be diluted by 20% based on the one-for-four bonus issue after the completion date, which is expected to be in the first quarter of 2011.
TNB yesterday closed at RM8.82, up from RM8.75 on Thursday. Of the 28 analysts polled by Bloomberg, 25 had a “buy” call on the stock, while two said “hold”.

The average target price for TNB as of yesterday was pegged at RM9.94.

“We think more retail participation will be encouraged once TNB’s share price gets diluted as a result of the bonus issue,” an analyst from a local bank-backed research house said. “So, it’s one way of boosting liquidity in that sense.”

TNB had earlier explained that the rationale behind its bonus issue was to reward its existing shareholders and enhance its counter’s liquidity.

OSK Research, while did not perceive there to be a real need for TNB to further boost its liquidity, maintained an encouraging view on TNB’s bonus issue.
“In view of the buoyant local market, we believe that the bonus issue will give TNB a shot in the arm,” it wrote in its report, noting the run-up of the share prices of companies that had recently announced bonus issues, such as LPI Capital Bhd and KFC Holdings Bhd.

Affin Research, on the other hand, said it expected TNB’s stock to be re-rated on the back of robust free cash flow, which stood at RM3bil for the nine months to May 2010. It was also positive on the company’s active capital management in terms of reducing debts and stepping up dividend payouts, as well as the impact of a fuel pass-through mechanism on the company in the longer term.

“TNB is a resilient play that is well poised to benefit from stronger economic growth and potential tariff hike,” Hwang-DBS Research noted.

TNB is presently trading at attractive 11 times its forward earnings for 2011 and 1.2 times book value, compared with its 10-year historical averages of 20 times and 1.5 times respectively, as well as against its peers’ averages of 14 times and 1.4 times.

Well, this is good for TNB minority shareholders.

CIMB-Best Quarterly Results Thus Far

CIMB has forecast that 2H results of 2010 will be as good as the first half.

CIMB -the country's second largest banking group,posted a record quarterly net profit in the April-June period and is positive on its prospects for the rest of the year.

Net profit in the second quarter was RM889 million, up 34 per cent from a year ago and 6.1 per cent higher than the first quarter's.

Its first half net profit rose 35 per cent to RM1.7 billion, driven by a strong rebound in corporate and investment banking, stronger contribution from its Indonesian unit and a drop in loan loss provision.

"This is our highest-ever three-month and six-month performance. We are positive on the outlook for the second half as there is a strong capital market deal pipeline and consumer growth momentum," group chief executive Nazir Razak told reporters at a results briefing late yesterday.

Analysts expect it to turn in a net profit of RM3.5 billion for the full year.

The group raised its return on equity target for the full year to 16.5 per cent from 16 per cent before. It kept the loan growth target at 12 per cent. Loans increased 11 per cent last year.

The group called off plans to sell a majority stake in its Southeast Asia Special Asset Management Bhd unit, in which it had lumped about RM8.4 billion worth of legacy bad loans.

It would not be "economically sensible" to divest the stake now under the new Basel II risk-based capital adequacy framework, Nazir said.

"With Basel II, that business is actually a lot more valuable to us from a capital and economic standpoint than we thought before," he remarked.

Nazir said CIMB Group will remain conservative in its capital position as it is still in the midst of migrating to the new framework.

Its Indonesian unit, PT Bank CIMB Niaga, was the largest contributor to the group's earnings. It accounted for 36 per cent of the group's profit before tax of RM2.3 billion for the half-year, compared with 18 per cent a year earlier.

CIMB Thai, which returned to profitability in that period, accounted for 1 per cent of the group's pre-tax profit. The Malaysian consumer bank's contribution to group pre-tax profit was slightly lower at 14 per cent, compared with 15 per cent before.

Corporate and investment banking's profit before tax rose about 73 per cent to RM498 million as regional capital markets in the first half were significantly better than a year earlier.

Well, there are many new price forecast. Many say it may breach RM8.30 if market is amenable. 

Stingy Genting Hits the Profit Jackpot

Genting Bhd posted a whopping 244.6% jump in net profit for its second quarter ended June 30 to RM739.2mil compared with RM214.5mil in the same quarter a year ago.

Revenue stood at RM4.1bil compared with RM2.1bil previously.

Genting said in a statement that the increase came mainly from its leisure and hospitality division following the commencement of Resorts World Sentosa (RWS) in Singapore.

It said the improved revenue from RWS was largely due to better luck in the premium players business, which also contributed to improved profit.

Genting said its casino in Britain benefited from an increase in business volume but the weaker pound sterling translated into lower casino revenue in ringgit terms.

It said revenue and profit from Genting Plantations Bhd was higher in the quarter as a result of better palm product prices and improved fresh fruit bunches production.

However, its power energy division Genting Energy Ltd recorded a lower revenue due to lesser generation of electricity by its Meizhou Wan plant in China.

Genting’s oil and gas division also posted a drop in revenue and profit due to lower share of entitlement in China.

The company said, overall, its better performance in the quarter was due to share of results in jointly controlled entities and associates.

For the six months ended June 30, Genting posted a 124% increase in net profit to RM971.6mil compared with RM427.6mil in the corresponding period a year ago.

Revenue jumped 71.4% to RM7.2bil from RM4.2bil before.

The company said it was cautiously optimistic about its prospects as regional competition continues.

“While business has been resilient, the management will continue to closely monitor the competitive environment and intensify its plans to meet growing competition.”

Genting also said that with the opening of Marina Bay Sands, RWS’s business had showed resilience and its business model had displayed impressive strength.

“RWS continues to be optimistic with its business model for the rest of the year,” it said.

It added that the resort hosted a series of high-profile entertainment events and promotions and would continue to fill the rest of its year-long calendar with activities to encourage fresh and repeat visitations.

It said RWS would continue to improve its attractions, facilities and infrastructure to meet guest expectations. Construction of the West Zone has started and it is expected to commence operations next year.

Genting also said the performance of its power division was expected to be impacted by the Meizhou Wan plant, which was experiencing lower-than-expected tariff increases and reduced generation hours.

The performance of its plantation division remains satisfactory.

Genting has declared a gross interim dividend of 3.3 sen per ordinary share of 10 sen each, less 25% tax, for the first half of 2010. [As usual, no special dividends from this stingy stooge!]

This represents a 10% increase compared with 3 sen per ordinary share of 10 sen each, less 25% tax, in the first half of last year.

Metronic Global: Mangled by Bad Debts

As Metronic plays a sub-contractor role for some government projects,the inability of the main contractor to obtain the payments from these government departments has caused Metronic to have poor operating capital and thus cannot pursue many new projects which it otherwise could. This is reflected by its miserable price of 5-6 sen per share.

Just how much is owed to Metronic?

In a filing to the Bursa today, related party trade receivables is RM46.914 million for sub-contract work
on certain federal public sector projects for the Government of Malaysia.  RM10.594 million are from 1-3 years old debts while RM36.32 million are aged  from 3-5 years old.

In July 2010, the Company did receive a minuscule repayment of RM290,000 in respect of an outstanding related party trade receivables amount owing from the Main Contractor.

As to the step to be taken to recover the monies, Metronic proposes

(a)Actively meet and negotiate with related parties to pursue the outstanding receivables;

(b) Contra the receivables against payables with the same related parties;

(c) Obtained consent from the Main Contractor Related Party to proceed with the certification and collection directly from Ministry of Health (“MOH”), Ministry of Finance (“MOF”) and Jabatan Kerja Raya (“JKR”).  The claim is pending certification by JKR before submitting to MOF for approval;

(d) Negotiated and obtained a Deed of Assignment from the Main Contractor Related Party to pursue the receivables directly from the Government of Malaysia; and

(e) To commence legal action to recover outstanding receivables in the event of failure to recover the full amount.

In relation to the related party receivables due from the Main Contractor Related Party, subject to the finalization of the claim certification by JKR and the subsequent disbursement of payment from the Ministry of Finance, the Company expects the outstanding receivables to be fully recovered through progressive disbursements to be made by the Government of Malaysia not later than 31 December 2011.

With regards to the other outstanding related party receivables other than from the Main Contractor Related Party, the Company expects full recovery within 1 year from August 2010.

I do hope the various certification dapartments are doing their work. What they have not been doing is bleeding Metronic.

So much for Malaysia Incorporated and 1Malaysia.

Postscript:

The latest quarter-on-quarter result ending June 2010 showed major improvements in the accounts of Metronic.

Revenue has increased 77% from RM 2.269 million in 2009 to RM21.724 million in the current year.

From a loss of RM624,00 in the corresponding quarter of 2009, Metronic has turned in a profit  of RM3.427 million.

As for  profit attributable to shareholders, it also display a positive RM 2.532 million compared to  a negative RM497 million accrued in 2009.

Earnings per share has increased from negative 8 sen in 2009 to 40 sen in 2010.

If Metronic can step up its debt collecting ability, things will be rosy once more for this moribund company.

An Optimistic RAM Prediction of GDP 2010

RAM Ratings expects gross domestic product (GDP) to expand 7.4% for the year following the Government’s announcement that GDP grew 8.95 in the second quarter ended June 30, 2010.

The rating agency said in a press release that they agree that the country’s GDP growth will possibly grow at a slower pace of 5.6% in the second-half (H2), which was broadly in line with potential output.

It said H2’s slower pace of growth was due to “moderating external demand, fading low-base effects and easing re-stocking activities”.

Meanwhile, RAM Ratings said resilient domestic demand drove consumption to a 6.5% growth while a 9.4% rebound in investment activities in H1 contributed significantly to the rapid recovery.

According to it, private consumption “is expected to maintain upbeat momentum with a 7.7% growth for the year, slightly higher than the public-sector component, where growth is anticipated to reach 6.4%”.

RAM Ratings said changing trade patterns was holding up external demand.

“Export growth is attributable to sustained (and increasing) demand from newly industrialised economies and China,” it said.

RAM Ratings noted that this trend was expected to continue as Asian economies still power much of the current global growth momentum.

“For the full-year, exports are projected to expand 12.9%, with imports clocking up 18.3% backed by a pick-up in industrial and investment activities,” it said.

RAM Ratings has also maintained the estimated inflation rate of 2.5% for this year as the rate reflected increasing consumer confidence and the rise in food and transport prices following the Government’s subsidy cuts.

Looks like quite a rosy picture,don't you agree?

Decapitating GenM: Was It Systematic?

Yes, they have made mistakes before.

The latest foray into the UK may just be another bad deal given the more difficult gaming environment in Great Britain.

Yes, at the time of writing this blog, the Genting UK  suggested purchase has already been railroaded and approved at the EGM yesterday.

The purpose of this blog is just to find out just how much of the approximately RM6 billion reserve at GenM has been systematically whittled down.

Let us do our sums.

We will begin after the sell-off of a majority of shares in Star Cruises which originally cost the company USD442 million [RM1.42 billion].

The information I got was the coffers of GenM ex-Star Cruise sale of shares was slightly above RM5 billion. [If all the unnecessary purchases have not been executed, GenM would have close to RM6 billion by end of fiscal 2010.]

GenM then bought into 10% of Walker Digital Gaming for US$69 million (RM222 million)

Then last year, they arm-wrestled minority shareholders to acquire Wisma Genting and the Segambut property Oakland for RM284.1 million.

Now this takeover the UK operations using  more than one quarter of the GenM reserves.

And what about the USD50 million MGM notes. The money has to come from the reserves as well, right?

Then there is this gratis payment for the racino project at Queen's NY of USD380 million.

It looks like we have possibly burst all of the reserves given the feverish buy back of its shares recently as Treasury shares.

So, I do not see very much of the reserves of the RM5-6 billion left in GenM.

It has to start from square one, it seems.

What a whipping boy, GenM has turned out to be!