NOVEMBER 4 — Saudi Aramco’s blockbuster listing remained shrouded in mystery today, a day after the company finally announced its plans, with scant details disclosed and expert valuations varying wildly from around US$1.2 to US$2.3 trillion. The…
DUBAI/ABU DHABI: Analysts provided wide valuation estimates for Saudi Aramco, ranging between US$1.2 trillion (RM4.9 trillion) and US$2.3 trillion, fund managers who have seen research notes said, as the oil giant kick-started its initial public offering (IPO) on the local bourse.
Bank analysts started showing IPO research to fund managers soon after Aramco, the world’s most profitable company, on Sunday announced its intention to float on the domestic bourse in what could be the world’s biggest listing.
The research reports highlight the challenge faced in hitting Saudi Crown Prince Mohammed bin Salman’s initial valuation target of US$2 trillion for the world’s largest oil producer, with some banks having said it could be about US$1.5 trillion.
Bank of America (BOFA) Merrill Lynch estimates Aramco’s valuation could range from a low of US$1.2 trillion to a high of US$2.3 trillion, while EFG Hermes has an equity valuation of US$1.55 trillion to US$2.1 trillion, two fund managers who have seen the research reports told Reuters.
The banks were not immediately available for comment.
BOFA Merrill’s research is based on the discounted-cash-flow model, a valuation methodology that uses future cash flow, according to one fund manager who saw the research.
Credit Suisse’s research also has similar wide ranges, the fund manager said.
“These ranges are always wide as research analysts want to cover both low end and high end so you want to show sensitivity of assumptions,“ one analyst said.
EFG Hermes research implies a 2020 estimated enterprise value to EBITDA ratio of 6.9 times to 9.4 times, a price-to earnings ratio of 14.5 times to 19.5 times, and a dividend yield of 3.9% to 5.3%.
Aramco’s long-awaited announcement on Sunday did not disclose the number of shares to be sold, pricing or the date for a launch.
Sources have told Reuters Aramco could offer 1-2% of its shares on the Riyadh exchange, raising as much as US$20 billion to US$40 billion. A deal over US$25 billion would top the record-breaking one of Chinese e-commerce giant Alibaba in 2014. – Reuters
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PETALING JAYA: There are mixed prospects for the banking industry going forward, but Maybank IB Research said that due to a slowdown in loan application growth, the outlook is subdued at this stage.
“Loan applications contracted across all major consumer segments and even mortgage applications saw growth drop to just 2.7% year-on-year (yoy) in August 2019 after having expanded at a rapid double-digit pace over the past three months,” the research house said in a note today.
Loan growth for August was stable at 3.9% yoy. Household loan growth was 4.6%, while non-household loan growth was 2.9%. Annualised loan growth was 2.9% in August 2019.
Overall deposit growth continued to slow down largely due to a slower pace of deposits from business enterprises. Industry deposit growth slowed down further to 4.6% yoy from 4.9% yoy in the previous month.
The loan-to-deposit ratio for the sector was 87.9%. Industry current account, savings account (CASA) expanded by 5.2% yoy, marginally lower than the 5.3% yoy registered in the previous month. CASA ratio remained stable at 25.7%.
The industry’s gross impaired loans (GIL) ratio was slightly higher at 1.61% in August versus 1.6% in July. On an absolute basis, GILs rose RM337 million month-on-month, mainly due to an increase in manufacturing GILs.
Maybank is retaining a neutral outlook on the sector, with a buy call on the smaller to mid-cap banks such as RHB Bank Bhd, AMMB Holdings Bhd, Hong Leong Financial Group Bhd, Alliance Bank Malaysia Bhd and BIMB Holdings Bhd.
CIMB Research is keeping its neutral call on the sector on concerns over margin contraction, due to the cut in the OPR, and an expected uptick in credit cost in 2019.
“On the flip side, banks’ dividend yields are attractive at 4.3% for CY19F. RHB Bank remains our top pick for the sector.”
Meanwhile, AmBank Research said it is maintaining its loan growth assumption for the sector at 4-5%, as well as its expectation of another Overnight Policy Rate (OPR) cut of 25 basis points in the second half of the year, which will be supportive of economic growth.
“Meanwhile, should Budget 2020 turn out to be mildly expansionary in line with market expectations, this will be positive on loan growth as well as mitigating the downside risk on the sector’s asset quality.”
AmBank is maintaining its overweight call on the sector as valuation and dividend yields of banks remain compelling. Its top picks remain as Malayan Banking Bhd (Maybank) and RHB Bank Bhd.
MIDF Research is also keeping a positive outlook on the sector as it thinks banking stocks are currently undervalued.
“The impact of the OPR cut will normalise and there are still positives for banks such as the low credit cost which should be able to alleviate any weakness in income.
“However, we also remain cautious due to prevalent uncertainties coming from external events such as the ongoing trade tension between the US and China,” it said.
MIDF’s picks for the sector are Maybank, CIMB Group Holdings Bhd and Public Bank Bhd.
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PETALING JAYA: Despite negative developments in the banking sector and a modest growth outlook for banks, investors can draw comfort from the sector’s inexpensive valuations.
HLIB Research said the sector is trading at -1.5 standard deviation (SD) to its five-year mean price-to-book (P/B), retaining its neutral call and advocating selective stock picking rather than blanket exposure to the sector.
“Those that favour exposure to this sector have to be selective. We like banks that give above average dividend yields, still eking out healthy growth, and valuations got bashed down to -2SD and trough P/B valuations.”
Its preferred pick is Malayan Banking Bhd (Maybank). Other buys are RHB Bank Bhd, Alliance Bank Malaysia Bhd and BIMB Holdings Bhd.
MIDF Research opined that banking stocks in general are currently undervalued given its fundamentals remains intact. Hence, it is maintaining the positive stance on the banking sector at this junction.
The banking system saw a lower loan growth of 3.9% year-on-year (yoy) in July 2019 compared with the 4.2% in June.
Despite the weak business sentiment, Affin Hwang Capital noted that the loan disbursement of RM102.4 billion in July 2019 remained higher than the average monthly disbursement from 2014-18 of RM93 billion.
Business loans grew at a more subdued pace of 2.5% yoy in July (from 3.4% in June 2019), partially affected by loan repayment activity in the finance/insurance sector, wholesale/retail trade and manufacturing sectors.
Household loan growth was up 4.7% yoy in June (June: 4.9% yoy) driven by residential mortgages and personal financing.
“We are currently reviewing our 2019 loan growth target of 5%, amidst cautious business and consumer outlook in 2019. On the other hand, downside risks are largely cushioned by the broad-based economy while over the longer term, we expect consumer sentiment to gradually improve and drive consumption spending,“ said Affin Hwang.
It said the banking system liquidity remains healthy and ample, and expects banks’ funding costs to ease over the next six months following the Overnight Policy Rate cut, as most banks have an average fixed deposits’ maturity of between six to nine months.
“We expect the overall banking system NIM to edge down by 6bps in 2019 to 2.22%, stemming from weak asset yields and overall higher funding cost.”
Affin Hwang Capital maintained its neutral sector stance, with RHB and Aeon Credit Service (M) Bhd as its top picks.
“We maintain our neutral sector view as we foresee a sector core earnings growth of 1.0% yoy in 2019, followed by 4.3% yoy in 2020.”
HLIB said with limited positive catalysts to spur stronger borrowing demand, it has toned down 2019 loans growth estimate to 4-4.5% from 4.5-5%.
The research house believes sustaining net interest margins (NIM) would remain as an uphill challenge, given that the slower loans growth environment should encourage banks to engage in price-based competition to chip share away from one another.