Malaysian Banks ended 2023 on a fairly subdued note, with aggregate pretax profit up just 3% YoY.
Nevertheless, Maybank Investment Bank (Maybank IB) look forward to a better 2024, where they project operating profit growth of 6.3% and net profit growth of 5.5%.
Maybank IB projects decent ROEs of 10.2% and dividend yields to provide support, averaging an attractive 5.5% for 2024.
Valuations are undemanding with the sector trading at a CY24E PER of 9.2x, which is lower than -1SD forward PER valuation of 10.1x (mean: 11.7x).
Maybank IB maintained a POSITIVE call on the sector with BUYs issued on AMMB, CIMB, PBK, HLBK, ABMB and HLFG.
A subdued 2023
Some common themes across the banks in 4Q23 include QoQ NIM compression and generally higher QoQ credit cost, mitigated in part by robust non-interest income (NOII). Banks ended 2023 on a subdued note, with cumulative pretax profit for banks in their coverage up just 3% YoY.
Nevertheless, net profit climbed 14% YoY, in the absence of Cukai Makmur.
Net profit growth of 5.5%/5.6% in FY24/25E
Looking forward, Maybank IB projects an aggregate 2024E operating profit growth of 6.3% (-1.2% in 2023), predicated on domestic loan growth of 5.1%, stable NIMs (+0bps expansion), and a marginally lower CIR of 44.4% (44.9% in 2023).
Maybank IB projects a core net profit growth of 5.5%, on higher aggregate credit cost average of 24bps versus 23bps in 2023. Into 2025, they forecast operating profit growth of 5.1% and core net profit growth of 5.6% YoY.
Decent ROEs, attractive yields
Maybank IB’s ROE forecasts are generally trailing most banks’ guidance and they expect ROEs to average 10.2% in FY24/25E against 10.4% in FY23E. Dividend yields are attractive, with RHB and Maybank potentially offering yields of more than 7% in FY24E.
Meanwhile CGS International said the industry’s loan growth saw a good start to 2024F by accelerating from 5.3% yoy at end-Dec 23 to 5.7% yoy at end-Jan 24.
In addition, the growth momentum also improved for both major loan segments – from 5.6% yoy at end-Dec 23 to 6% yoy at end-Jan 24 for household loans and from 3.6% yoy at end-Dec 23 to 4.2% yoy at end-Feb 24 for business loans.
CGS International are projecting a slower loan growth of 4-5% for banks in 2024F (vs. 5.3% in 2023), as they do not expect the strong momentum in the growth of 10.2% yoy in auto loans at end-Jan 24 to be sustainable (potentially slowing down to 3-5% in 2024), on the back of our expectation of weaker car sales in 2024F.
…and robust leading loan indicators
Another positive take for the Jan 24 statistics was robust leading loan indicators. Loan applications and approvals grew at swift pace of 39.8% yoy and 46.5% yoy respectively at end-Jan 24.
These bode well for the banking industry ‘s loan growth over the next 1-2 months.
CGS International is also encouraged to see those applications and approvals of all three major loan segments, i.e. residential mortgages, auto loans, and working capital loans, expanded at rates of more than 30% yoy in Jan 24, reflecting strong loan demand in the banking system.
Safe and sound for asset quality
The industry’s gross impaired loans declined by RM193.1m, or 0.5% mom, to RM35bn in Jan 24, against a loan expansion of 0.3% mom in Jan 24.
This led to a marginal 1bp mom decline in gross impaired loan ratio to 1.64% at end-Jan 24.
CGS International expects the gross impaired loan ratio to be stable in 2024F with a projected ratio of 1.6-1.7% at end-Dec 24F.
Reaffirms Overweight on banks
CGS International e reaffirm their Overweight call on banks, supported by the sector’s strong dividend yield of 5% for CY24F.
Furthermore, the sector’s CY24F P/E of 10.2x is attractive relative to the banking sector’s 5-year historical average of 11.9x and current market P/E of 15.4x.
Rerating catalysts include potential write-backs in management overlays and increases in dividend payout ratios, as more banks embark on capital management initiatives.
Potential downside risks would be a material deterioration in loan growth and asset quality. Our picks for the sector are Hong Leong Bank and Public Bank.
