RHBIB Upgrades Bank Sector To 'Overweight' From 'Neutral'

KUALA LUMPUR, Sept 9 (Bernama) -- RHB Investment Bank Bhd (RHBIB) has upgraded the bank sector to 'overweight' from 'neutral' previously with AMMB, Public Bank, Hong Leong Bank and Alliance Bank Malaysia as its preferred picks. 

In a research note, RHBIB opined that markets may be going through a volatile period and upcoming events such as the US presidential election and the US Federal Funds Rate (FFR) interest cut cycle are likely see volatility persist. 

"Malaysian banks under our coverage could offer investors a defensive shelter to hide out, backed by stable earnings with upside optionality from further foreign institutional investor (FII) inflows and earnings upgrades if banks’ optimism on the outlook proves prescient," said the research firm. 

FIIs have turned net buyers of domestic equities, with a year-to-date (YTD) net inflow of about US$866 million.

Nevertheless, this could still be early days as foreign investors continue to warm up to Malaysia’s stable economic growth, domestic reforms and thematic plays.

Banks, as liquid, large cap stocks, will likely be beneficiaries of FII inflows, it said. 

Meanwhile, RHBIB said the main recommendation change was its downgrade of CIMB to 'neutral' from 'buy' as it posted strong share price performance this year with the potential upside now more modest.

“We continue to expect the sector to post net profit growth of around six per cent per annum in the financial year 2024-2026 on the back of a rebound in net interest income (NII) as net interest margin (NIM) stabilises and expansion in loans continues. 

“We have pencilled in NIMs stabilising in 2024 after a 24 basis point (bp) year-on-year (y-o-y) drop in 2023 and despite a mild moderation in loan growth, NII should recover from the decline in 2023,” it said. 

It also assumed that control and credit cost (CoC) stays roughly stable going forward. 

“For now, despite the strong start to non-II, we continue to assume a moderation in non-interest income (non-II) sector growth to six per cent y-o-y (2023: 28 per cent), with fees helping to pick up some of the moderation in growth from non-fee income,” said RHBIB. 

It added that downside risks to its recommendation would stem from weaker-than-expected NIM and/or non-II; higher-than-expected operating expenditure from an inflationary environment, business expansion, and technology spending could also lead to a weaker-than-expected bottomline.

-- BERNAMA