KUALA LUMPUR: Malaysian banks are set to benefit from structural reforms, long-term themes, and economic masterplans, according to RHB Investment Bank Bhd (RHB Research).
The firm stated that while near-term beneficiaries will continue to attract investor interest, banks should also gradually reap the benefits.
"Amid normalising sector earnings growth, we prefer stocks that offer above-average earnings and/or dividend growth, such as CIMB Group Holdings Bhd and AMMB Holdings Bhd (Ambank Group)," the firm said in a note.
Meanwhile, RHB Research said the impending global monetary easing cycle should bring welcome relief to regional banks under its coverage on a net basis.
It noted that Indonesian banks will likely benefit from easing funding cost pressures, while Thai banks could see asset quality strains alleviated.
"Bank Negara Malaysia (BNM) is expected to stand pat, and hence, Malaysian banks appear largely neutral.
"For Singaporean banks, as long as the easing in rates is gradual, there should be sufficient levers to help cushion net interest margin (NIM) pressure," it added.
RHB Research said the yield theme will continue to drive performance, with the upcoming second quarter (2Q) reporting season coinciding with dividend payments by banks in Singapore, Thailand, and Malaysia.
The firm noted that this will lead to banks potentially offering a decent 3Q performance in terms of total returns.
It added that in an environment where sector earnings growth is moderating across countries, investors appear to have gravitated towards dividend yielders.
"Fundamentally, NIM and asset quality will likely remain key areas of focus across the region in the upcoming results, especially in Indonesia and Thailand.
"In Malaysia and Singapore, non-interest income should be the key swing factor for sector earnings trends, while asset quality looks under control," it said.
RHB Research noted a preference for Malaysian banks due to their stronger growth prospects and more attractive valuations, while highlighting that both Singaporean and Malaysian banks will continue to offer investors decent yields.
According to RHB Research, Affin Bank Bhd stands out in terms of individual stock returns year-to-date (YTD).
The bank's strong performance is driven by expectations that the emergence of a new major shareholder will be a game changer for the group.
RHB Research also highlighted CIMB and DBS Bank as the next two stocks that have performed well YTD.
The firm believes that their yields are attractive, and both banking groups have demonstrated their willingness to do more on capital returns, seeing room for further capital management initiatives ahead.