KUALA LUMPUR (July 1): Kenanga Investment Bank Bhd has maintained its "overweight" call on the banking sector, buoyed by improved economic prospects driven by infrastructure projects and investments.

In a note on Monday, the investment bank said market tailwinds such as ongoing loan growth, gross domestic product improvement and better margin retention, are expected to continue overshadowing industry headwinds like inflationary pressures and a weaker ringgit.

“We believe this will likely result in fewer challenges to the sector's resilience. The sector remains appealing due to attractive dividend yields of 6%-7% on most stocks, coupled with lower inherent sector volatility compared to other industries,” it said.

Kenanga's top picks for the third quarter of 2024 include CIMB Group, which has achieved a return on equity of approximately 11% and aims to sustain this growth long-term with a strengthened presence in both local and regional markets.

Additionally, the research firm said CIMB boasts a dividend yield nearing mid-6% levels, the highest among its top peers.

RHB Bank is also favoured for its expected leading dividends of 7%-8% and the potential public entry of its associate, Boost Bank, which could attract significant interest in the near term.

For small-cap banks, Alliance Bank Malaysia remains a favourite due to its solid fundamentals comparable to larger peers.

Meanwhile, MIDF Amanah Investment Bank maintains a 'buy' call on Public Bank with an unchanged target price (TP) of RM4.78 as of June 28, 2024, when the stock price stood at RM4.02.

The firm cites improving dividend payouts, anticipated major writebacks in the financial year 2024, as well as small and medium-sized enterprises' loan growth as supporting factors.

Similarly, MIDF Research maintains a 'buy' call on Hong Leong Bank with an unchanged TP of RM21.38, with the stock priced at RM19.20 on June 28, 2024, noting its strong cost-to-income ratio and robust asset quality.

Although HL Bank's associate, Bank of Chengdu (BoCD) is expected to see moderated earnings, it remains a solid growth driver, MIDF said.

Meanwhile, Maybank Investment Bank Bhd (Maybank IB) said the industry loan growth moderated to 5.8% in May 2024 from 6.1% year-on-year in April 2024, aligning closely with their full-year forecast of 5.5%.

Maybank IB maintains a "positive" outlook on the sector and recommends buying shares of AMMB Holdings, CIMB Group, Alliance Bank, Public Bank, Hong Leong Bank and Hong Leong Financial Group, in that order of preference.

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