PETALING JAYA: Non-bank financial institutions (NBFIs) in Malaysia are witnessing healthy recovery in their underlying operations.
RHB Research said four out of the six NBFIs under its coverage have outperformed the FBM KLCI on a year-to-date basis.
“These companies are seeing decent progress in the recovery of underlying operations and we expect them to record positive top line growth in the coming quarters.
“Our top picks for the sector are Allianz Malaysia Bhd
and Aeon Credit Service (M) Bhd,” it said in a strategy note.
RHB Research noted that three non-bank lenders under its coverage – Aeon Credit, Elk-Desa Resources Bhd and RCE Capital Bhd – recorded strong growth in loans and financing in their latest quarterly results.
“We remain upbeat on the non-bank lenders’ top line growth, especially as their mostly fixed-rate offerings could prove to be more attractive for their target market of bottom 40% (B40) and middle 40% (M40) customers in the current rising interest-rate environment.
“Despite this, we maintain our cautious stance on asset quality.
“The non-bank lenders’ close proximity to the inflation-vulnerable B40 and M40 segments could add pressure on asset quality should inflation worsen,” it added.
Commenting on insurers, RHB Research said concerns over the implementation of the Malaysian Financial Reporting Standard (MFRS) 17 are already priced in.
It also noted that Allianz’s share price has risen by about 11% year-to-date, whereas Syarikat Takaful Malaysia Keluarga Bhd (STMB) has slipped by about 11%.
“This more or less commensurate with our belief that Allianz is the better positioned of the two insurers to face the adoption of MFRS 17 on Jan 1, 2023.”
It said most of the contracts Allianz underwrites are profitable and it has a smaller exposure to single-premium products.
Guidance from management indicates that the company will only be minimally impacted by the adoption of MFRS 17, it said.
“On the other hand, STMB has guided for a 15% to 20% cut in net profits as a result of the implementation.
“Despite this, we continue to encourage investors to look beyond bottom line numbers, as they might not accurately reflect the health of the insurers’ business, especially in the early days post-adoption,” it said.
