Kenanga Research said it was maintaining an “overweight” call on the banking sector.
PETALING JAYA: Amid mixed prospects in the broader macro economic climate, banks appear to be upholding conservative targets in spite of strong earnings deliveries in the first quarter of calendar year 2024 (1Q24), says Kenanga Research.
However, the research firm said it was maintaining an “overweight” call on the banking sector, as net interest margins are recovering, while loan growth still appears encouraging.
“Loan growth is projected to be solid at 5.5% to 6% in 2024 and could outweigh our in-house gross domestic product (GDP) forecast of 4.5% to 5%.
“We also maintain our expectations for the overnight policy rate (OPR) to be unchanged at 3% throughout 2024, as we believe Bank Negara may approach monetary policies with greater scrutiny as the gravity of spillovers from the recent diesel subsidy rationalisation remain unclear,” Kenanga Research said in a report.
It said keeping interest rates left could be essential in supporting the already soft ringgit, while lowering it may spur institutions to adopt outflow positions from the country.
According to the research firm, its in-house GDP expectation of 4.5% to 5% for 2024 will be supported by rising construction and infrastructure projects.
It also anticipates export-oriented businesses to do well by capitalising on the weak ringgit, though this may be offset by a strained operating environment for those with a higher net-import exposure.
“On the corporate side of things, we reckon the banks could do better in a stable OPR environment, as past mistiming had greatly pinned down their management of funding costs which have mostly shown recoveries in the past quarters.
“In addition, the banks are due to benefit from heightened investment market activities where jeopardising it could translate to softer non-interest income performances in the second half of this year.”
Kenanga Research’s sector top picks for 3Q24 include CIMB Group
Holdings Bhd, whose return on equity has risen to around 11% and is likely to sustain in the long term, having strengthened its presence in both the local and regional markets.
“Additionally, its dividend yield is creeping well into the mid-6% levels at current price points, which is the highest amongst the top three banks.
“RHB Bank Bhd is also favoured for its dividends, which we project to be the leader (7% to 8%) among its peers.”
As for small-cap banks, Alliance Bank Malaysia Bhd remains the research firm’s favourite because of its solid fundamentals which are comparable to large-cap peers.
Additionally, its leading current account savings account level may provide the group nimbleness to balance its interest margins with market share acquisition strategies, added Kenanga Research.
