CIMB Banks Sector Note - Risks narrowing, valuations aligning

Banks Sector Note - Risks narrowing, valuations aligning - by Mulya Chandra CFA ( - )

Banks' FY08 results met or exceeded our forecasts and consensus expectations. Most maintained a safe NPL range, but we expect the NPL cycle to escalate in 1Q09. On expectations that market risks will continue to narrow, we see opportunities for banking stock valuations to better align with their respective ROEs, implying Mandiri, Danamon, and BRI could outperform, and BCA and Panin, underperform. We have factored in 0.3-0.6% lower discount rates, and upgraded our target prices by 8-28%. Our sector weighting has been upgraded to Overweight from Neutral on the view that market risks to banking stocks have improved.