KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB Research) maintains the view that banks still have room for upside in their share price despite the recent positive price performance.
"Moreover, the current valuations of banks are inexpensive, trading near -1.0 standard deviation price-to-book (P/B) ratio, and the appealing dividend yield stands at five to six per cent.
"As such, we stay tactically bullish on the sector and employ a rather broad stock buying strategy in 2H23, with five BUY recommendations under our coverage," HLIB Research said.
It likes Public Bank (TP: RM4.80) for its defensive qualities and multi-year low foreign shareholding; and Alliance (TP: RM4.15) is favoured for its large management provision overlays buffer as a percentage of gross loans.
Separately, both RHB (TP: RM6.60) and AMMB (TP: RM4.35) have the bandwidth for larger dividend payout in the near future. Lastly, BIMB (TP: RM2.35) is the only bank it follows that is currently trading near -2 standard deviation P/B.
HLIB Research noted that that system loans growth was slightly below its full financial year 2023 (FY23) expectations of an increase of 4.5 to five per cent. However, it anticipates a pick-up in the second half of the year.
The investment bank also said the leading indicators have weakened, with loan applications decreasing by 8.9 per cent year on year (YoY) in May compared to a growth of 27.7 per cent in the previous month.
Both the household segment (-11.2 per cent versus May: +17.7 per cent) and the business segment (-5.4 per cent vs May: +44.5 per cent) experienced contractions. The growth of deposits decelerated to 5.9 per cent YoY compared to an increase of 6.7 per cent in May, and all segments exhibited some form of tepidness.
Asset quality improved, as evidenced by the gross impaired loans (GIL) ratio for June 2023, which decreased by four basis points month-on-month (MoM) to 1.76 per cent.
This improvement was driven by the business segment, which saw a decrease of eight basis points, while the household segment remained stable.
"Going forward, we see GIL ratio creeping up but would not be overly worried since banks are better equipped versus prior slumps.
"The sizeable pre-emptive provisions built up over the past three years acts as robust buffer to pad any asset quality weakness in the short-term that could potentially stem from macro headwinds and tighter monetary policy," HLIB Research said.