KUALA LUMPUR: The non-bank financial sector's June 2024 quarter results largely met expectations from RHB Investment Bank Bhd (RHB Research).
The firm highlighted key upcoming catalysts, such as the expected US Federal Reserve rate cut cycle and a potential revision of civil servant salaries.
Despite this, RHB Research points out that valuations within the sector are varied and advises a more selective investment strategy, emphasising undervalued, high-growth stocks and those with promising dividend potential.
The firm has maintained a "Neutral" rating on the sector, with its top picks being Bursa Malaysia Bhd and Aeon Credit Service (M) Bhd.
RHB Research noted that Bursa Malaysia's first half of 2024 (1H24) net profit of RM155.5 million met the firm's and street's expectations.
It believes that post-results, management raised its 2024 profit before tax target to RM361 million to RM379 million (from RM273 million to RM323 million), which is still rather conservative.
"The group is cautious of potential risk-off behaviour arising from ongoing geopolitical developments but sees upside potential from its strong initial public offering (IPO) pipeline and continued securities market strength.
"The commencement of the US Federal Funds Rate cut cycle is also positive for domestic trading liquidity.
"As such, Bursa remains on track to deliver record-high securities average daily value (SADV) (ex-pandemic period) in 2024.
"While no confirmation has been provided by management, we also note that Bursa has a track record of paying out special dividends in years of record-high SADV, and it is currently holding on to cash in excess of optimal levels," it noted.
In terms of insurance, RHB Research said it prefers Syarikat Takaful Malaysia Keluarga (STMB) over Allianz Malaysia (ALLZ) for its smaller portion of participating contracts, allowing it to retain a bigger portion of its investment returns.
This also includes its laggard status and undemanding valuation.
On non-bank lenders, RHB Research said the sub-sector should benefit from the revision to the civil servants' salary scheme on both the receivables growth and asset quality fronts, but the impact of subsidy rationalisation measures remains to be seen.
It noted that both Aeon Credit and ELK-Desa Resources Bhd's asset quality looks decent.
The firm added that both companies are expecting credit costs to trend downwards, while RCE Capital Bhd's provisioning could benefit from fewer exits from the civil service with the salary revision.
"Aeon Credit is our preferred pick for the sub-sector, given its undemanding valuation and multiple growth engines.
"This includes its up-and-running digital bank, while management had also previously hinted at potentially raising dividend payouts," it said.