TA Securities Research has maintained its underweight recommendation for the banking sector amid a forecast that net profit would contract by 24.8% in 2020.
Foreseeing more challenges in the second half of 2020 (2H20), the research house has also retained a sell rating across all banking stocks under its radar.
TA Securities further noted that the outlook for next year is also looking increasingly uncertain as it expects some downside risk from the current growth profit forecast of 10.2%.
“We had further reduced our CY20 and CY21 forecast for total income in the past six months to take into account expectations of softer loan growth and additional margin compression (from Bank Negara Malaysia’s 50bps overnight policy rate cut in May 2020),” analyst Li Hsia Wong wrote in today’s sector report.
Moving forward, the research house projected shrinking targets as downside risk to earnings gathered pace, driven by softening topline growth, rising vulnerabilities due to heightening non-performing loans and increasing cost pressures.
“We gather that business activities could remain in cautious mode which could result in softer demand for loans and capital market activities going into 2H20 although there are also opportunities of a slight pick-up in demand for working capital and a restart of operations post the movement control order,” Li said.
Banks under TA Research’s coverage are Maybank, CIMB, RHB Bank, Alliance Bank, AMMB, Public Bank, Hong Leong Bank and Affin Bank. – June 23, 2020
