KUALA LUMPUR (Aug 17): The rally in Malaysian banking stocks is gathering steam with Malayan Banking Bhd (Maybank) and RHB Bank Bhd leading the pack, both of which hit record highs this week.

Attractive valuation, relatively steady outlook plus weightage on the FBM KLCI have made the banks the main beneficiary of the renewed foreign interest in Bursa Malaysia, according to analysts contacted by The Edge.  

The rally started in July, fuelled by stronger inflow of foreign investment funds, said Hong Leong Investment Bank Bhd (HLIB) analyst Chan Jit Hoong, noting that the soft ringgit and cheap valuation have attracted some foreign interest.

Rakuten Trade Sdn Bhd equity research vice-president Thong Pak Leng said most banks are considered blue chips, hence they tend to be the choice when foreign investors return to the local market.

Their defensive nature and regular dividend payment are also key factors drawing investors’ interest, Thong said.

Dissipating concerns about a possible systemic fallout following the collapse of Silicon Valley Bank in the US and Credit Suisse in Europe, which had dragged down the banking stocks in the first half of the year, has helped fuel the banking stock rally.

Another banking analyst said asset quality and earnings growth are also tailwinds. He expects further upside of 5% to 10% on banking stocks from the current level.

“For one, asset quality has not been as bad as initially anticipated post-pandemic, while global economic conditions have also not fallen off the cliff, as initially expected.

“On the business front, conditions are fair, which should see steady earnings growth [among banks],” said the analyst, noting that another catalyst is the write-back of large provisions that banks made in recent years.

Banks made massive provisions in 2020 and 2021 in view of the unprecedented Covid-19 health crisis that halted economic activities globally, expecting it to also bring along a severe economic slowdown. Adjusting interest rates and governments’ expansionary fiscal policies worldwide have helped steer the global economy away from a deep recession.

The banks are due to release their quarterly earnings for the April-June period this month. Analysts expect them to deliver a stronger set of results on a year-on-year basis, because of the absence of the prosperity tax (cukai makmur).

However, HLIB’s Chan expects bank’s earnings growth to be muted compared with the immediate previous quarter of 1Q2023, given net interest margin (NIM) contraction as banks sacrifice margin for loan growth and rising cost pressures.

The share price of Maybank, the largest listed company on Bursa Malaysia by market capitalisation, soared to a record high of RM9.03 on Tuesday (Aug 15) from this year’s low of RM8.26 in March.

It closed at RM8.97 on Thursday, valuing the bank at RM108.12 billion. Analysts’ consensus target price stands at RM9.26, according to data compiled by Bloomberg.

There were 12 'buy' calls on Maybank, seven 'holds' and two 'sells', with target prices ranging between RM8 and RM10.30.

RHB Bank also marched to a record high of RM5.75 on Wednesday (Aug 16). It finished at RM5.67 on Thursday, giving it a market cap of RM24.3 billion.

CIMB Group Bhd has climbed 19% from the low of RM4.81 in early June to a high of RM5.73 on Wednesday. The rise in share price added RM9.8 billion to its market cap. It closed at RM5.64 on Thursday, giving it a market cap of RM60.15 billion.

Meanwhile, Public Bank Bhd has gained 10.3% from its year’s low of RM3.78 to RM4.16 on Thursday, while Alliance Bank Bhd was up 14% from its low of RM3.14 to RM3.60 and AMMB Holdings Bhd increased 14% from RM3.37 to RM3.85, valuing it at RM12.75 billion.