Growth in net income was modest at 1.6% QoQ while operating expenses rose by 0.4% QoQ in 3QCY24. This led to a positive JAW of 1.2% QoQ. Net interest income (NII) declined marginally QoQ with loans contracting by 0.7%. NIM was stable at 2.18% in 3QCY24. Meanwhile, non-interest income (NOII) rose in the quarter largely due to Maybank and RHB Bank's higher core fees, treasury, and markets income. Asset quality for banks under our coverage improved slightly with a lower GIL ratio of 1.68%. Loan provisions declined MoM resulting in a lower net credit cost of 21bps in 3QCY24 (2QCY24: 23bps). Expect a softer 4QCY24 earnings underpinned by NIM compression from the year-end deposit competition and more challenging treasury and investment income with the increase in 10-year MGS yield QoQ. Maintain NEUTRAL on the sector with limited ROE expansion on moderating earnings growth to 6.3% in 2025. CIMB (TP: RM9.50/share) and Hong Leong Bank (TP: RM26.90/share) are our top picks. Maintain UNDERWEIGHT on Maybank (TP: RM8.90/share) on stretched valuation with limited ROE uplift.

• Banks' 9M24 core calendarized earnings increased by 9.9% YoY with a stronger net income partially offset by higher operating expenses (OPEX) and provisions for loan impairments. Total income of banks rose by 9.6% YoY attributed to an increase in NII of 3% YoY supported by loan expansion and higher NOII of 22.6% YoY.
• 9M24 earnings of 5 banks under our coverage were within expectations while 1 was better than expectation and another slightly missed our forecast. Results of 5 banks (Maybank, RHB, Hong Leong Bank, CIMB, Alliance Bank) were within our net profit estimates. In contrast, Bank Islam's net profit was slightly below our estimate due to a lower-than-expected fund based and non-fund-based income. MBSB's earnings were better than our forecast attributed to a lower-than-expected allowances for financing losses.
• Our sector calendarised core earnings growth for CY24/25 has been revised to 7.5%/6.3% from 7.0%/6.4%. This is after a revision in CY24 earnings for Bank Islam from an increase in our projected income derived from investment of shareholders' funds as well as a higher CY24 net profit for MBSB with a lower estimate for financing provisions. Kelvin Ong, CFA kelvin-ong@ambankgroup.com +603-2036 2294

Source: AmInvest Research - 11 Dec 2024