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SECTOR UPDATE
BANKING (OW↔). Tailwind Diffusions & Near-term Cushions. We maintain our OVERWEIGHT call on the sector. Local banks will likely remain as a safe haven against ongoing recessionary concerns on better near-term earnings growth security. The demand for loans should continue to be supported by more working capital needs while the interest rate upcycle should bolster margins, albeit we expect normalisation in 2HCY22 should there be no further hikes beyond the anticipated 25 bps bump in Jan 2023. On the flipside, banks are preparing against possible erosion in asset quality if inflationary pressures get the best of the market. Still, we reckon present buffers are sufficient with hopes of writebacks should the above anxieties prove to be lacking. That said, the longer-term outlook for the sector hinges on GDP outperformance to keep loans growth upbeat amidst possible margin reversion as rate competition brew. For 1QCY23, our Top Picks continue to lean on names with sustainable performance and additional investible merits, being: (i) MAYBANK (OP; TP: RM10.40) over dividend safety (7-8% yield) and market leading share, (ii) CIMB (OP; TP: RM6.40) for supportive regional performance, and (iii) ABMB (OP; TP: RM4.20) for its high SME loans and CASA mix with solid ROEs (11%) and dividend prospects (6%). We also upgraded PBBANK (TP: RM4.70) to OP from MP to capitalise on share price weakness amidst unchanged fundamentals.
- KENANGA
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