MIDF Research has maintained its positive stance on the banking sector, mainly based on the ability of banks in general to navigate the headwinds they faced.
“We are cautiously optimistic and maintain our positive stance at the moment. However, we are cognizant of the potential headwinds this year coming from the risk to asset quality.
“Not to mention the increasing volatility of share price performance,” the research house said in a note on Feb 5.
Its top picks for thr sector are banks with scale and size or the ability to maintain earnings momentum while good dividends yields will be an added bonus.
These are Malayan Banking Bhd (Maybank) (buy, target price: RM10.30), CIMB Group Holdings Bhd (buy, TP: RM6.30) and RHB Bank Bhd (buy, TP: RM6.35).
The research house viewed that banking stocks, in general, are relatively undervalued. The majority of the banks are trading below their three-year historical average.
“We believe that the recent price weakness is mostly sentiment driven, associated with the novel coronavirus outbreak. The fact that the banks comply with even the additional Domestic – Systemically Important Banks (D-SIB) requirements suggests that banks will be able to withstand any major shocks.
“The banks have thus far managed to navigate the headwinds faced and we believe they will continue to do so,” it said.
On Feb 5, Bank Negara Malaysia (BNM) issued the policy document on D-SIB framework and with it the inaugural list of D-SIBs. These are Maybank, CIMB and Public Bank. D-SIBs are banks which are well tied to the economy and the financial system.
On another note, MIDF opined that the novel coronavirus does not have a direct impact on the banking sector. Any impact will be indirect and due to the possible disruption to trade and consumer spending patterns.
“This might have an effect on businesses’ asset quality. However, we believe that it is too early to be overly concerned as it is still unclear how long the outbreak will last.
“Nevertheless, we will monitor the situation accordingly,” it added. – Feb 6, 2020
