• Downgrade to NEUTRAL from Overweight. Sector earnings growth should hold up in 2024, supported by a decent macroeconomic backdrop. We remain bullish on the insurers, but are more selective towards the non-bank lenders given the sub-sector’s mixed risk-reward offerings. We downgrade the sector to a NEUTRAL as we believe valuation has caught up to fundamentals, and advocate a laggard play for the sector – Aeon Credit Service (ACSM) and Syarikat Takaful M’sia Keluarga (STMB) are our Top Picks.

• Insurance: Total returns still decent. We are expecting a moderate year for insurers under our coverage for two key reasons: i) An expected slowdown in car sales coming off a record-high year in FY23; and ii) moderation in total investment returns, largely due to an absence of the low-base effect. Nevertheless, stabilising claims and reinsurance costs, as well as a pickup in life insurance/family takaful contributions should enable mid-single digit bottomline growth, at the least. Capital upside could come from a gradual pricing out of Malaysia Financial Reporting Standards 17 (MFRS17) concerns, while yields of 4-5% are decent.

• Non-bank lenders: Stay selective. Receivables growth in CY24 should more or less track current targets – low-double digit for ACSM and ELK-Desa Resources, and mid-single digit for RCE Capital. However, we are cognisant of valuations being stretched for certain counters after a decent showing in CY23. Our preferred pick for the sub-sector is still ACSM for its undemanding valuation (0.9x P/BV vs 14% ROE) and sizable presence in multiple states to anchor its growth on. While EPS growth will undoubtedly be hindered by start-up losses from its soon-to-launch digital bank, we believe the investment will pay dividends in the medium to long term via new customer acquisition and cross-selling opportunities.

• Bursa Malaysia: Positives already priced in. BURSA’s share price has performed decently YTD, having added 8% since the start of the year and 21% since Jun 2023. While management is upbeat on an improvement in securities average daily value (SADV) in 2024, we believe the market has largely priced in these expectations. On the other hand, BURSA’s ventures into new territories (carbon markets, debt fundraising, etc) are unlikely to contribute meaningfully to its topline in the medium term. We are NEUTRAL on the local exchange – the biggest upside risk could come from better-thanexpected SADV (our 2024 SADV forecast: MYR2.7bn), while downside risk could come from greater-than-expected opex.

• Look to the laggards. After a year of compelling share price performances sector-wide in 2023, we believe valuation has caught up to fundamentals. In 2024, we turn to the two laggards, ACSM and STMB. Both are demonstrating healthy fundamentals and possess bright growth prospects (ACSM EPS growth: +14% ex-digital bank losses in FY25F (Feb), STMB EPS growth: +10% in FY24 (Dec)), but respectively trading at significant discounts to historical mean valuations. On the flipside, stretched valuations for certain counters present a profit-taking opportunity.

Source: RHB Securities Research - 5 Feb 2024