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2022 Outlook- Maybank IB positive on plantation, stable for banking, construction

10/01/2022 12:07 PM

KUALA LUMPUR, Jan 10  -- Maybank Investment Bank Bhd (Maybank IB) is positive on the plantation sector’s outlook for this year, and has assigned a ‘stable’ outlook rating for the banking and construction sectors.

In its MY Credit Outlook 2022 report, Maybank IB said the positive outlook for the plantation sector was premised on crude palm oil (CPO) prices staying elevated in early-2022 as supplies are expected to be kept tight by the seasonally low production, in addition to the lack of competing soybean oil supply.

“The big discount of CPO price to Argentina soybean oil price suggests that CPO price is unlikely to fall substantially in the near-term.

“Supply is expected to normalise with the peak production period in the second half of 2022 (2H22), but weather risk from La Nina, higher fertiliser costs that delay/cut usage and protracted labor shortage in Malaysia can affect supply,” it said.

Maybank IB had also projected CPO price for 2022 to be at RM3,200 per tonne compared with RM4,430 per tonne in 2021, noting that Malaysian planters remain exposed to foreign labor risk.

As for the banking sector, it expects banks’ earnings to be supported by slightly quicker loan growth of 4.0 per cent for this year compared with 2021’s estimate of 3.8 per cent.

It said the downside risks to earnings include slower current/savings account growth impacting net interest margin, lower investment income, elevated credit costs and one-off prosperity tax.

“Malaysian banks are well capitalised with Common Equity Tier 1 (CET1), with core capital and risk-weighted capital ratios at 14.3 per cent, 14.8 per cent and 18 per cent, respectively, as of end-Oct 2021.

“Overall, we expect broadly stable conditions for banks,” it said.

 Meanwhile, MaybankIB said that construction players would be busy in 2022, but headwinds remain.

It said construction players would see credit metric improvements during the year as works ramp up with the acceleration of existing major infrastructure and property projects on the back of sustained reopening.

However, it noted that new COVID-19 variants, the absence of new major Infrastructure projects that starts in 2022, and cost pressures from higher prices of materials and labour shortage are downside risks to the industry, it said.

“We maintain our ‘stable’ outlooks on Gamuda Bhd and IJM Corporation Bhd, and a ‘negative’ outlook on WCT Holdings Bhd, given its still high leverage and weak liquidity position despite the arbitration funds.

“Risks include disruptions to construction activity due to lockdowns and weak order book replenishment which may lead to substantially lower construction earnings,” it said.

The government’s development expenditure, having been stalled by the pandemic, sees a record high allocation of RM75.6 billion in 2022, of which RM3.5 billion is allocated for the continuation of national infra projects, including the Pan Borneo Highway.

Maybank IB added that the sector is awaiting the financing model for Klang Valley Mass Rapid Transit Line 3, and noted the potential revival of the Kuala Lumpur-Singapore High-Speed Rail project.




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