In its final MPC meeting for the year, Bank Negara Malaysia has once again raised the OPR by 25 bps to 2.75%, as expected. Unyielding inflationary pressures continue to be of note, although this is expected to gradually ease with the expectation of one remaining 25 bps hike in the first quarter of 2023 pushing the interest rates to 3.00%. Earnings impact on corporates is expected to be marginal.
Taking this into stock, research house Kenanga Investment Bank has kept most of its stock calls unchanged, except for minor upticks to the Target Price of CIMB and Public Bank. In addition, it has upgraded the call on PBB to Out Perform from Market Perform as recent selling presents opportunities. The bank, Kenanga says commands the leading GIL ratio amongst peers (0.3% vs. peer average of 2.1%) which could be attributable to its densely collateralised housing loan portfolio.
Current price points would allow investors to gain a more modest ~4% dividend yield in the long run. Additionally, PBB has the largest green financing books with a stricter stand regarding coal financing.
With an overweight position on the banking sector, the research house is of the view the sector is healthy despite having eluded inflationary pressures which may bring rise to delinquency risks, as the banking sector’s asset quality concerns are well managed as repayment trends are resuming healthily from recovering economic activity as well as higher income and employment. Provisions it added are still tightly managed within banks and heavy overlays are still in place to be utilised should a shift in macros make a drastic turn. In this rising rate environment, demand for loans (particularly in the retail front) may subside but this could be cushioned by higher interest margins, for which there is an anticipation of one further 25 bps hike to take place in 1QCY23.
Stock selections during this period, for the larger cap banks, are CIMB (OP; TP: RM6.40) for defensive NOII reporting as trading performances are supported by its regional entities. It also commands one of the highest CASA books amongst the large-cap banks.
Notably, CIMB has been awarded a 4-star ESG rating for its sustainable financing efforts, MAYBANK (OP; TP: RM10.40) which remains a dividend favourite (7-8% yield) and provides shelter for investors preferring more secured returns. As the market share leader in loans and deposits, MBB would also be more widely exposed to the benefits of the economy reopening. Meanwhile, Kenanga picks ABMB (OP; TP: RM4.20) from amongst the small-cap banks for being the leader in SME loan proportions (30%) which is expected to be the highest growth segment as well as for its highest CASA mix (50%). The stock’s fundamentals are also comparatively better than its larger-cap peers in terms of ROE (10%) and dividend yields (6%)
