Domestic markets seem to anticipate more challenges to come, with the nation’s local domestic currency exhibiting perpetual weakness. Meanwhile, factors that were expected to boost overall economic activity failed to translate to meaningful immediate improvements.
“Not helping either are mixed signals sent by foreign markets with the US Fed’s “hawkish pause” to interest rates in attempts to tighten inflationary pressures there,” said Kenanga Research (Kenanga) in the recent Sector Update Report.
All that said, there may be a lower appetite for investors to remain with long-term positions, which typically point towards banking stocks. Kenanga’s Overweight call remains unchanged as despite the lower target prices, there could still be opportunities presented in the banking sectors in the near-term which should be wholly considered.
Although there could be some pressure with regards to interest margins from deposits competition, other aspects from the banking sector are expected to remain resilient. Continued loans growth should still move in tandem with economic activities.
Although the outlook for investment markets could appear mixed, stable interest rates should prevent excessive fair value losses to a bank’s portfolio, particularly in debt securities.
Meanwhile, credit cost guidance lean towards stable-to-improving reporting, notwithstanding possible write-backs as mentioned. More
materially, the lapse of prosperity tax imposed in CY22 provides a notable support to bottomline readings.
“Despite our reduction in target prices, we continue to have confidence in the banking space for its resilient earnings and with average dividend yield of 6% providing an attractive shelter for longer-term investors,” said Kenanga.
While Kenanga had previously promoted safety in rationalising their top picks, they believe certain stocks have now been oversold and present tactical opportunities for investors.
“We highlight CIMB as we believe investors may pay closer attention towards writeback prospects closer to the end of the year, and CIMB’s sizeable overlay relative to earnings present some handsome translation to earnings and special dividends. On the other hand, the group is also expected to report double-digit earnings growth in the coming years, where some peers could only see more modest performance,” said Kenanga.
Kenanga also likes Public Bank as the large outflux of foreign investors on the stock may be unwarranted, seemingly only justified by weakening RM undermining foreign portfolio holdings.
The group also appears arrested by uncertainties in its future shareholding structure, but we believe any clarity from here only offers upside prospects as overall operations are expected to be fundamentally untouched given its systematic importance to the local financial ecosystem. Being the safest bank in terms of asset quality readings, present levels offer cheap opportunities for entry.
“Lastly, we also consider AMBANK as we believe its current fundamentals are highly supportive of healthier discussions for M&As, which has in the past been frequently considered. The group is also one of the leaders in terms of SME profile, which is touted as a high-growth segment that could accelerate market share growth for the group,” said Kenanga.
