Kenanga Research said common equity tier-one accumulations for some banks have reached new levels.
PETALING JAYA: The fourth-quarter 2024 (4Q24) results season is expected to be bogged down by market-wide deposits competition, as banks shore up liquidity for next year, according to Kenanga Research.
“Eyeing 4Q24, the banks are unanimously anticipating funding costs to be pressured by seasonal year-end deposits competition. However, this should not overly undermine the banks’ earnings with return on equity (ROE) guidance eyeing for stronger outcomes than financial year 2023.
“We opine most of the uncertainties will come from non-interest income volatility, especially from the ringgit strength and bond yields still exhibiting moderate fluctuations.
“At least for now, we are growing more confident to put asset quality issues behind the sector, as provisioning needs are lukewarm with only a select few pain points existing (namely Alliance Bank Malaysia Bhd
’s Alliance One Account portfolio, MBSB Bank’s legacy books, RHB Bank’s Thailand assets),” the research house added.
Meanwhile, the brokerage said common equity tier-one (CET-1) accumulations for some banks have reached new levels.
Noteworthy are AMMB Holdings Bhd (AmBank) and CIMB Group Holdings Bhd (to about 15%), following the former’s transition to the foundation internal rating-based (FIRB) standards and the latter from strong earnings accretion.
“The banks guided that this would improve dividend payment capacity and would be gradual in nature. This serves as a relief to the sector, especially given that dividend yields have been diluted following the recent run-up in share prices,” the brokerage added.
Post-3Q24 results, Kenanga Research said it believes the sector’s earnings resilience is well-tested, but may be less merited by investors as regional markets may echo policy shifts in the United States.
“Therefore, interest in the sector is subsiding amid possible shifts in monetary policies mirroring expectations on monetary policy, undermining our expectations for the overnight policy rate (OPR) to remain stable at 3% throughout 2025.
“Additionally, following the buying rally over the last quarter, sector dividend yields have eroded from an average of around 6% to just over 5%, urging investors to be more selective with their picks going forward.”
Having this in mind, the research house said it is rotating its favourites to banks.
“We highlight Hong Leong Bank Bhd which has successfully reinforced its domestic operations to outpace its associate, Bank of Chengdu (BOCD) in terms of earnings growth.
“This would gradually reduce concerns about over-reliance on BOCD for sustaining earnings growth while mitigating the negative implications of the bank monetising its 19.4% stake in the company.”
Kenanga Research said it also liked AmBank on the back of a more solid ROE backbone, as the group focuses on stronger earnings drivers as opposed to gaining market share in less profitable segments.
“Following its recent transition into FIRB, the group’s newly acquired CET-1 levels of about 15% could lead to more generous dividend payouts and make AmBank one of the leaders in yield prospects (about 6%). This is premised on our anticipated dividend payout of 50% against the group’s more gradual step-up of 45% (from 40%),” the research house noted.
On the whole, Kenanga is maintaining its “overweight” stance on the banking sector.
