Loans growth is projected to be solid at 5.5%-6.0% in CY24 and could outweigh Kenanga’s in-house GDP forecast of 4.5%-5.0%. Amidst mixed expectations on US Fed rates, the house retains its stance of a 3% OPR throughout CY24 as uncertainties towards inflation may be more pronounced in 2HCY24.
Corporate guidances lean towards similar sentiment with banks seeming looking to uphold conservative targets in spite
of strong deliveries in 1QCY24’s report card with NIMs recovering and loans growth still appearing encouraging.
Looking into the banking sector, headlines caution higher inflation numbers and possibly dents to overall productivity stemming from recent diesel subsidy rationalisation where input and transportation costs may rise excessively. Kenanga said it believes that stresses from here may likely materialises in the medium-term and could still be subject to revisions in implementation.
At the meantime, Kenanga said the progressive loading up of household loans from sustained mortgage demand could persist thanks to more affordably-priced units launched.
On the flipside, the house’s GDP expectation of 4.5%-5.0% for CY24 will be supported by rising construction and infrastructure projects. It also anticipate export-oriented businesses to do well by capitalising on the weak MYR, though this may be offset by a strained operating environment for those with a higher net-import exposure.
Kenanga maintains its expectations for OPR to be unchanged at 3% throughout CY24. It believes BNM may approach monetary policies with greater scrutiny as the gravity of spillovers from the abovementioned diesel subsidy rationalisation remain unclear. On the other hand, the recent 2ppts increase in selected SST categories is also muddled into upcoming inflation reports. That said, BNM is required to balance interest rates as keeping them lofty could be essential in supporting the already soft MYR as lowering it may spur institutions to adopt outflow positions from the country.
On the corporate side of things, we reckon the banks could do better in a stable OPR environment as past mistiming had greatly pinned down their management of funding costs which have mostly showed recoveries in the past quarters. In addition, the banks are due to benefit from heightened investment market activities where jeopardising it could translate to softer non-interest income performances in 2HCY24.
The house is keeping its OVERWEIGHT call on the banking sector. Amidst mix prospects in the broader macro climate, it anticipates the banking sector’s resilience to be mostly unchallenged following extensive efforts in fortifying its risk exposures post-pandemic and better perspectives in targeting strong quality assets while maintaining profits.
Top picks for 3QCY24 include CIMB which has been able to reach new grounds in its ROE at c.11% which the group
looks to sustain into the long term thanks to strengthening presence in both home and regional markets. Additionally, its dividend yield is creeping well into the mid-6% levels at current price points, which is the highest amongst the top three banks. RHBBANK is also favoured for its dividends which we project to be the leader (7%-8%) amongst its peers.
Meanwhile, its associate Boost Bank may soon enter the public domain which could garner greater interest in the near-term. As for small cap banks, ABMB remains favourite for its solid fundamentals which are comparable to its large cap peers. Additionally, its leading CASA level may provide the group nimbleness to balance its interest margins with market share acquisition strategies.
