KUALA LUMPUR, June 30 — After a rough patch in the first half of 2023, Malaysian banks are expected to still be able to pull off a decent performance in the second half on factors such as the absence of a prosperity tax, improving net interest margins (NIM) and benevolent treasury market conditions.

“After considering a multitude of factors, we see an opportunity to buy banks on weakness in the wake of the recent market slump,” Hong Leong Investment Bank (HLIB) said today in its sector outlook research note.

HLIB reckons that “the risk-reward is skewed to the upside, especially since headwinds were already broadly baked into forward expectations.”

“As such, we are tactically bullish on the sector and employ a rather broad stock-buying strategy in the second half of 2023, with six ‘buy’ calls under our coverage,” it said.

Public Bank (target price RM4.80) is favoured for its defensive qualities and multi-year low foreign shareholding level. CIMB (target price: RM5.85) and Alliance (target price: RM4.15) are favoured for their large management provision overlay buffer as a percentage of gross loans.

The research house is also positive on RHB (target Price: RM6.60) and AMMB (target price: RM4.35) for their “bandwidth” for larger dividend payout in the future as well as BIMB (target price: RM2.35).

Although NIM underwent a sharp decline in the first quarter of 2023, HLIB believes it will start to abate as soon as the second quarter with any further quarterly drop going forward to be much shallower, followed by a gradual improvement.

“This is premised on a large proportion of fixed deposits having been repriced in the fourth quarter of 2022 to the first quarter of 2023 and a more rational fixed deposits rivalry while current and savings accounts substitution to fixed deposit should moderate,” it added.

HLIB said the recent overnight policy rate hike would help blunt any NIM slippage.

The Malaysian Government Securities (MGS) market, on the other hand, “has legs to run” since the OPR/Fed fund rate is closer rather than further to the terminal level of the current rate upcycle.

“Also, we see investors’ attention shifting back to emerging markets. Besides, MGS’ foreign holding level is at a more than a decade low,” it noted. — Bernama