Customers use automated teller machines (ATMs) inside a combined CIMB Group Holdings and CIMB Islamic bank branch in Kuala Lumpur, Malaysia, on Wednesday, May 29, 2024. CIMB’s 1Q profit may show decent growth, although likely tempered by higher operating costs, according to analysts. Photographer: KG Krishnan/Bloomberg
PETALING JAYA: There is higher possibility for the banking sector’s earnings to potentially outperform during the upcoming reporting season, says Kenanga Research.
For 2024, the expectation is that system-wide loan growth will remain resilient at 5.5% to 6%, given better employment prospects coupled with higher civil servant income that will support repayments and asset quality.
Key winners could likely be the more corporate-centric banks as corporate banking accounts may experience a higher acceleration than retail banking accounts in the near-term, Kenanga Research said in a report yesterday.
The research house, which has an “overweight’’ call on the sector, believes that investors may be eyeing at banks with stronger growth prospects as this may indicate market-share gains against the slower performing peers.
Of its seven “outperform’’ calls, Kenanga Research still prefers CIMB Group
Holdings Bhd with a target price of RM7.60 and Alliance Bank (M) Bhd at RM4.60 as its top picks.
This is because the two banking groups are well-positioned to demonstrate solid return on equity (ROE) and dividend returns in the near term.
Benefiting most from asset-quality improvements is likely to be RHB Bank Bhd, with a target price RM7.25, which would bolster confidence in the bank meeting the expected 7% dividend yield despite more modest growth, added Kenanga Research.
The research house has maintained its estimates for now, awaiting the upcoming second quarter 2024 (2Q24) earnings release.
As for for the third quarter, Kenanga Research’s top picks continue to be CIMB and Alliance Bank as “both are expected to breach new levels with regards to their ROEs at above 10%”.
