ASEAN Banks: Event driven catalysts ahead - DBS Vickers

Malaysian banks excitement driven by M&As. Thai banks should see the investment recovery cycle supporting growth. Indonesian banks are facing policy changes and macro pressures.

Within Emerging ASEAN, we still prefer Malaysian banks over Thai and Indonesian banks. Singapore banks continue to lag as it waits for rate hikes but has lowest downside risks vs. peers. Top ASEAN picks are OCBC, HLBK, KBANK and BBRI. Notable valuation calls are BBNI, BBL and RHBC.

An event driven year; Malaysian banks steal the limelight. Malaysian banks
are likely to witness the next M&A wave with changes imminent in strategic ownerships. The target banks will benefit from input the potential stakeholders could bring to the table to improve stand-alone value propositions, e.g. AMMB-ANZ. RHBC is our best bet for an M&A play.

Thailand banks are expected to see sustainable earnings growth in 2011 from an
investment recovery cycle coupled with rate hikes via loan growth and higher NIM. Indonesian banks are overwhelmed with policies apart from inflation and rate hike issues. Singapore banks are still waiting for rate hikes.

Inflation and rate hikes are themes to note. All eyes are on Indonesia and how it battles with inflation and possible rate hikes. We believe that micro lending business such as BBRI's is an inflation hedge story. BBRI's asset quality and loan growth for micro lending has been robust throughout the inflation cycle. Rate hikes are still expected for the year. Thai banks, particularly KBANK are the best proxy for rate hikes with NIM outperforming ASEAN peers.

Our preference. Singapore banks have lagged as it waits for rate hikes but has the lowest downside risks vs. peers. We are keeping Singapore banks on top of our Buy list as valuations are cheap, asset quality is robust, capital is intact, and downside risk is the most limited vs ASEAN peers.

The sterling loan growth rates of 16%/17% y-o-y in Jan/Feb this year coupled with a GDP growth forecast at 7% poses a potential further upside to our estimates. Within Emerging ASEAN, we still prefer Malaysian banks over Thai and Indonesian banks. OCBC, HLBK, KBANK and BBRI are our ASEAN picks. Our top picks are OCBC, HLBK (replacing MAY), KBANK and BBRI. Of these, we believe BBRI, our top Indonesian bank pick, is a non-consensus view. We have replaced MAY with HLBK as our top pick among Malaysian banks for its strength domestically, leveraging on its China exposure and potential M&As ahead. Notable valuation calls are BBNI, BBL and RHBC. RHBC is our bet for an M&A.