HLIB Research said it was tactically bullish on banks, premised on inexpensive valuations, appealing yields and the undervalued ringgit.
PETALING JAYA: The banking industry has shown some resilience in its recent first-quarter report card even as it faces a tougher operating environment.
This was evident as the industry’s net interest margins (NIMs) generally contracted, which is indicative of the prolonged strong competition for deposits.
The industry also has generally experienced an increase in operating expenses.
This scenario had gathered pace following the reopening of the economy.
Maybank IB Research noted that banking NIMs had seen a contraction of 30 basis points from the previous consecutive quarter for the banks in its coverage.
“As a result, the first-quarter’s aggregate core operating profit was relatively flat year-on-year (y-o-y).
“Nevertheless, it was still a decent quarter for banks, as non-interest incomes held up well and grew 18% y-o-y.
“Meanwhile, cumulative core pre-tax profit rose 8% y-o-y, while core net profit jumped 16% y-o-y in the absence of Cukai Makmur or the prosperity tax,” it said.
Despite this, the research house said it expects operating profit in 2023 for the banks under its coverage to contract 2.4% from a growth of 2.6% previously.
This is after taking into account continued NIM compression and higher costs.
However, operating profit growth is expected again in 2024 of 4.7% on stable NIMs and loan growth, it said.
“We (still) project core net profit growth of 6.5% in 2024, supported by a lower but still elevated credit cost of 26 basis points,” Maybank IB Research said.
Meanwhile, Hong Leong Investment Bank (HLIB) Research appeared to be upbeat on the sector’s dynamics.
“We see opportunity to buy banks on weakness in the wake of the recent market slump, given the irrational fear-driven selling.
“Fundamentally speaking, nothing has drastically deteriorated.
“The headwinds above were broadly baked into forward expectations,” HLIB Research said.
It said it was tactically bullish on banks, premised on inexpensive valuations, appealing yields and the undervalued ringgit.
These factors, it added, may lure foreign investors back to the Malaysian market.
“Going forward, we see the 2022-2024 sector profit growing at a two-year compounded annual growth rate of 8.8%.
“Our ‘buy’ calls include for Public Bank Bhd
, CIMB Group Holdings Bhd, RHB Bank Bhd, AMMB Holdings Bhd, Alliance Bank Malaysia Bhd and Bank Islam Malaysia Bhd,” HLIB Research said.
