PETALING JAYA: Despite enjoying an earnings recovery, valuations of local banks are currently hovering close to Covid-19 pandemic levels, which Maybank Investment Bank (Maybank IB) Research believes is unjustified.
“Banking stocks in our coverage currently trade at an average price-earnings ratio (PER) valuation of just 9.3 times, which is close to the pandemic trough PER of 8.3 times in October 2020.
“In fact, average valuations are even lower than the long-term minus one standard deviation to mean PER of 10.1 times,” the research firm said in a banking sector update.
The research firm remains positive on the sector, backed by return on equity (ROE) averaging 10% amid an earnings growth forecast of 5.8% and 6.5% for 2024 and 2025, respectively, while dividend yields are expected to average about 5%.
It noted the sector earnings growth over the past 10 years has been relatively subdued, averaging just 4.7% from 2013 to 2022.
“Even so, forward PER valuations over this period have averaged 11.8 times. Currently, forward PER valuations average just 9.5 times for 2024 despite expectations of faster aggregate earnings growth of 5.8% in 2024 and 6.5% in 2025.”
It believes local banks could see an improvement in their foreign shareholding levels, which have trended down post the 2009’s global financial crisis.
“We have seen some foreign interest in recent months, in the likes of Malayan Banking Bhd
(Maybank) and CIMB Group Holdings Bhd, which have seen their foreign shareholding levels claw back up from their troughs,” the research firm said.
Maybank’s foreign shareholding currently stands at 19.2%, which is roughly midway between its peak of 26% and low of 15.6%.
As for CIMB, its foreign shareholding had climbed to 30.7% at December 2023 since its trough of 20.3% in May 2021, which may be attributed to the commendable financial performance of the group.
While it may still be early days to determine whether Malaysian banks can attract foreign interest, Maybank IB Research said their attractive valuations, decent earnings recovery, sustainable ROEs and dividend yields of 5% or more are reasons for foreign investors to reconsider investing in Malaysian banks.
Meanwhile, RHB Research in a recent report, noted a favourable macroeconomy and ebbing headwinds on margins and asset quality suggest a more conducive setting for banking stocks performance this year.
It added most banks have retained their overlay buffers, which should help cushion against isolated incidences, while forecast financial year 2024 (FY24) to FY25 dividend yields of 5.5% to 6% looked decent.
