RHB Research said Bursa Malaysia remains on track to deliver record-high securities average daily value (ex-pandemic period) in 2024.
PETALING JAYA: Non-bank lenders are expected to see several catalysts in the near term, including the start of the US Federal Reserve’s (Fed) rate cut cycle and a revision of civil servant salaries, according to RHB Research.
However, investors are advised to adopt a more selective approach, prioritising undervalued high-growth stocks or dividend-paying companies, as the research house believes valuations are mixed across the sector.
“Looking ahead, the sub-sector should benefit from the revision to the civil servants’ salary scheme on both the receivables growth and asset quality fronts, but the impact of subsidy rationalisation measures remains to be seen.
“For now, asset quality looks decent – Aeon Credit Service (M) Bhd
(ACSM) and Elk-Desa Resources Bhd are expecting credit costs to trend downwards, while RCE Capital Bhd’s provisioning could benefit from less exits from the civil service with the salary revision,” RHB Research said.
The research house added that ACSM is its preferred pick, given its undemanding valuation, having the lowest price earnings in the sub-sector and multiple growth engines, including its digital bank.
Its management had also previously hinted at raising dividend payouts.
RHB Research also identified Bursa Malaysia Bhd as its top pick, driven by a strong initial public offering pipeline and continued securities market strength, boosted by the Fed’s rate cut cycle, which is positive for domestic trading liquidity.
“Bursa Malaysia remains on track to deliver record-high securities average daily value (SADV) (ex-pandemic period) in 2024.
“While no confirmation has been provided by management, we also note that Bursa has a track record of paying out special dividends in years of record-high SADV and it is currently holding on to cash in excess of optimal levels,” it added.
The research house remained selective on the insurance sector following a three-percentage point dip in terms of underwriting margins for Syarikat Takaful Malaysia Keluarga Bhd (STMB) over Allianz Malaysia Bhd, primarily dragged by elevated claims and acquisition costs.Nevertheless, investment returns were up by more than 30% year-on-year on marked-to-market (MTM) gains and continued portfolio expansion.
“Moving forward, we think the strong investment performance for both insurers can continue.
“This is especially with the onset of the global rate cut cycle, which is positive for MTM investment gains.
“We do not see much near-term benefit arising from the introduction of mandatory co-payment options, as meaningful co-payment take-up will require time,” the brokerage said.
RHB Research prefers STMB over Allianz due to its smaller portion of participating contracts, allowing it to retain a bigger portion of its investment returns, as well as its laggard status and undemanding valuation.
