• Top Picks (preference order): CIMB, AMMB, Hong Leong Bank (HL Bank), and Alliance Bank Malaysia (ABMB). The sector saw profitability slip on a sequential basis, though the trend was as broad as expected. Looking ahead, healthy loan demand and stable asset quality with sound buffers are positives, but funding for growth could see deposit competition escalate, as well as a more conservative stance on dividend payouts. We remain sector NEUTRAL amid moderating earnings growth prospects and continue to prefer growth stocks with reasonable valuations.

• 4Q23 results in line... Of the eight banks under our coverage, six posted results that met expectations. CIMB beat estimates on stronger-thanexpected non-II and milder-than-expected credit cost while Affin disappointed on higher-than-expected opex. Compared against Street, six results were in line – BIMB and CIMB posted marginal beats, while Affin came in below Street’s expectations. Interim dividends declared were mixed. HL Bank and BIMB’s DPS were higher-than-expected while CIMB surprised with a special DPS. Affin’s dividend missed on a lower-than-expected payout.

• …with net profit down 2% QoQ (+6% YoY). It was a somewhat noisy quarter, as AMMB opted to use the bulk of its MYR538m tax credit to beef up credit impairment buffers, impair intangible assets, and set aside provisions for restructuring costs. Consequently, 4Q23 sector pre-tax profit slipped 10% QoQ and 14% YoY, (-5% QoQ, ex-AMMB’s one-offs). That said, operating income was very decent (+2% QoQ, -2% YoY), as stronger fees and marketsrelated non-II, as well as robust loan growth (+2% QoQ, +7% YoY), more than offset NIM weakness (-4bps QoQ, -40bps YoY). Sector opex rose 7% QoQ (+9% YoY), with the sequential rise partly seasonal. Loan and other impairments were also higher during the quarter, ex-AMMB’s lumpy charges, with sector credit cost at 24bps (3Q23: 22bps). Asset quality improved with GIL at 1.49% (3Q23: 1.62%) while LLC moved higher to 111% (3Q23: 109%).

• Briefing highlights. We note optimism from banks on loan demand, supported by retail mortgages, SMEs, and roll out of infrastructure projects. Asset quality appears benign with no major stress areas noted – further supported by some banks having taken the opportunity to further strengthen provision buffers last year and holding on to the overlays. From the briefings, it appears that banks are in no rush to write-back these overlays. On the flipside, NIM guidance was mixed. There has been some yield pressure in segments such as mortgages and SMEs, and strong credit growth may lead to a pickup in deposit competition. Also, opex may be sticky due to inflation and currency effects, as well as ongoing digital and technology investments.

• FY24-25F sector core net profit nudged up. After updating for the FY23 results and earnings revisions, the sector’s FY23-25F PATMI has been revised up by c. 2% pa. Key changes were for CIMB (FY24F-25F PATMI +9- 10%), BIMB (FY24-25F PATMI: +6-7%), and Affin (FY24F-25F PATMI: -12 to -13%). Following from the above, we now project sector FY24 earnings to rise by 7% YoY (FY23: +13% YoY), supported by stable NIM and loan growth.

Source: RHB Securities Research - 8 Mar 2024