KUALA LUMPUR: The banking sector is poised to finish the year with a positive return following a good run in the first half of 2024 (1H24).
Hong Leong Investment Bank Bhd (HLIB Research) stated in a note that generally there was an improved appetite for banks.
On a relative basis, Affin Bank Bhd was the best performer, given news on higher Sarawak's stake, while Public Bank Bhd was the weakest, dragged by a narrower return on equity (ROE) versus peers.
"Over the next three quarters, we see slower year-on-year (YoY) profit expansion given stable net interest margin (NIM), tapering but still decent lending growth, a downward normalising trading gains bias, along with a flattish NCC.
"Overall, financial year 2024 (FY24) sector earnings are projected to grow six per cent versus 15 per cent in FY23, while sector ROE is seen widening slightly to 9.2 per cent," it said in a note.
Although the firm believes NIM will be stable in FY24, it also equally thinks a large NIM recovery would be difficult.
This is considering the sector current account saving account (CASA) ratio is elevated, and it does not discount the possibility of a reversion to a pricey fixed deposit.
It added that an that an overnight policy rate hike is not expected for the rest of the year.
"All in all, we are conservative and projecting a mild NIM slippage of 0-1 basis point for FY24–25."
It is also sceptical that the strong first quarter non-interest income growth clip can be sustained given the historical volatility of Treasury gains.
"Also, there are no signs of an OPR cut in the near term, and the Fed is seen to keep its rate higher for longer. As such, we expect the 10-year US Treasury yield to hover below four per cent, making it more attractive than the 3.9 percent 10-year MGS yield. With this, investors may shy away from MGS," it added.
The firm maintained a "neutral" call on the sector.
"After considering a multitude of factors, we believe that the banking sector is lacking zest, meaningful tailwinds, and fresh positive catalysts to spur share prices significantly higher.
"At the same time, there are no strong compelling reasons to trim positions on banks. As such, we feel it is too premature to be a "Debbie Downer.".
"After all, valuations are not excessive, and banks are still eking out minor profit growth in FY24/25," it added.
It favoured AMMB Holdings Bhd (target price: RM4.60), Public Bank Bhd (TP: RM4.90), and Alliance Bank (TP: RM4.10).
