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Published: Monday December 31, 2012 MYT 8:55:00 AM
Updated: Monday December 31, 2012 MYT 11:29:45 AM

RHB Research maintains Overweight on Malaysian banks

KUALA LUMPUR: RHB Research Institute maintains its Overweight outlook on Malaysian banks as inexpensive valuations, heavyweight sector and ample liquidity in the system mean the sector should not be ignored, especially for funds benchmarked to domestic indices.

The research house said on Monday banking stocks fit in well with its market strategy and could offer investors the best of both halves.

"We think the sector's 'defensive' qualities will help tide investors through the volatile first half on even keel," it said.

RHB Research said the two key factors are earnings, which it sees as robust and "safe".

The research house said with corporate earnings still weak and a larger proportion of bigger-cap companies reporting results that were below expectations in the recent third quarter reporting period, investors keen to negative earnings surprises would find banks a good bet.

Secondly, valuations remain inexpensive, both relative to the FBM KLCI and regional peers. Banking stocks also offer decent dividend yields.

"As macro conditions improve after that, we see the banks as one of the major beneficiaries. A rerating in banking stocks globally and/or a comeback in cyclical stocks would provide an added booster to share price performance," it said.

RHB Research said its top picks for the sector are Maybank and Public Bank. It sees Maybank as an excellent proxy to ETP activities while its diversified domestic loan book as well as geographical exposure means it is less vulnerable to the impact of domestic policy changes on household credit demand.

Maybank is also expected to be key beneficiary from Malaysia's vibrant capital market activities. Finally, Maybank's payout and dividend yields are the highest among the banks.

"As for Public Bank, we like the group for its leading domestic retail banking franchise, well-regarded management, sound asset quality and cost efficiency. Dividend yields are also decent. Our top picks are also defensive, with the betas for both Maybank and Public Bank being the lowest among peers," it said.

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