CGS-CIMB Research has reiterated its “overweight” stance on listed Malaysian banking stocks after factoring in the imposition of cukai makmur (prosperity tax) and a 25-basis point (bp) hike in overnight policy rate (OPR) projected for mid-2022.
On a positive note, following its recent earnings adjustments to factor in cukai makmur and the 25bp hike in OPR, the research house still projects a core net profit growth of 2.4% for banks in CY 2022F although this marks a slash from an original growth rate of 8.1%.
In its earlier reports, the research house has (i) cut 1.4% of its projected CY2021F core net profit for the sector (due to cukai makmur); (ii) a reduction of 6.5% in CY2022 core net profit forecasts (as the negative impact from cukai makmur would more than offset the positive impact from OPR hike); and (iii) a 2.3% rise in CY2023F core net profit forecasts (lifted by OPR hike).
“Following the earnings revisions, we cut our projected core net profit growth from 10.5% to 9% for CY2021F and from 8.1% to 2.4% for CY2022F,” analyst Winson Ng pointed out in a baking sector update.
“We are encouraged that our expected earnings recovery in 2021-2022F remains intact after factoring in cukai makmur despite projecting core net profit to expand at slower rates.”
Additionally, CGS-CIMB Research has also raised its projected growth in banks’ core net profit from 7.6% to 17.7% for CY2023F due to (i) lower base for CY2022F core net profit (dragged down by cukai makmur); and (ii) the positive impact of OPR hike on CY2023F earnings.
“We reiterate our ‘overweight’ rating on Malaysian banks given the potential re-rating catalyst from the continuation in earnings recovery in CY2022F,” asserted the research house. “The expected earnings catalyst for CY2022F would be our projected 7% increase in net interest income and 4.8% drop in loan loss provisioning.”
Following the earnings adjustments, CGS-CIMB Research kept its recommendations for all Malaysian banks under its coverage, including the “add” ratings for Public Bank Bhd, Hong Leong Bank Bhd, Malayan Banking Bhd (its top picks), RHB Bank Bhd and AMMB Holdings Bhd as well as “reduce” calls for Affin Holdings Bhd and Alliance Bank Malaysia Bhd. – Nov 12, 2021
