KUALA LUMPUR (Dec 1): Banking and financial services stocks were among the top gainers in early morning trade on Friday, after they concluded the latest earnings reporting season with mostly encouraging results.

At the time of writing, Hong Leong Financial Group Bhd was the top gainer, up 40 sen or 2.48% to RM16.50 a share. Allianz Malaysia Bhd was in the third place, with a 22 sen or 1.22% gain to RM18.33. 

Hong Leong Bank Bhd was the fourth biggest gainer, after rising 14 sen or 0.74% to RM19.14. In the fifth place was CIMB Group Holdings Bhd, with an 11 sen or 1.95% gain to RM5.76.

AMMB Holdings Bhd was seventh on the list of top gainers, with a nine sen or 2.27% increase to RM4.05.

Other banking stocks also saw gains. Hong Leong Capital Bhd advanced five sen or 1.06% to RM4.72, while Alliance Bank Malaysia Bhd rose four sen or 1.17% to RM3.47.

Hong Leong Bank’s results for the first quarter ended Sept 30, 2023 (1QFY2024) were within the street’s expectations. Analysts kept their "buy" and "add" calls on the stock, but were mixed when it came to their target prices (TPs).

For instance, CGS-CIMB raised its TP to RM25.30, from RM26.30 previously, after rolling over its base period to the end of 2024.

Meanwhile, RHB Research maintained its TP at RM23.20, followed by Maybank Investment Bank at RM23, and TA Research at RM21.60.

On the other hand, MIDF Research trimmed its TP to RM21.38 from RM22.96, based on a revised FY2025 price-to-book value of 1.11 times, to reflect altered earnings prospects and its return-on-equity-based valuations.

“We also lower our valuations to account for negative sentiment pertaining to the Chinese market, as well as its low dividend yields, which have since fallen behind that of its peers,” the research house said.

CGS-CIMB said in a note on Friday that Hong Leong Bank was able to sustain its net interest margin (NIM) for the past two financial quarters, with a quarter-on-quarter expansion of one basis point.

“This was mainly achieved through active asset-liability management by growing loans at a faster pace than the expansion in deposits. Its total deposits even contracted by 1% quarter-on-quarter in 1QFY2024. Going forward, it still has room to employ a similar strategy to fend off deposit competition, as its loan-to-deposit ratio of 86.1% at end-September 2023 was significantly lower than the levels of more than 90% for most of the other banks.”

CGS-CIMB did, however, caution that Hong Leong Bank’s net profit could dip below RM1 billion for 2QFY2024, as it does not expect the net write-back in loan loss provision in 1QFY2024 to be sustainable.

“Based on this, net profit would decline by 4% to 6% year-on-year in 2QFY2024, due to lower net and non-interest income, and increased overheads,” it said.

On the other hand, analysts said CIMB’s results for the third quarter ended Sept 30, 2023 (3QFY2023) exceeded their expectations and maintained their calls, with some raising their TPs for the stock.

Maybank Investment Bank kept its "buy" call, while raising its TP to RM6.70. TA Securities reaffirmed its "buy" rating, but raised its TP to RM6.60 from RM6.40, in tandem with higher earnings forecasts for CIMB. MIDF Research kept its "buy" call, while raising its TP to RM6.62 from RM6.43, based on a revised 0.98 times price-to-book value.

PublicInvest Research kept its "outperform" call, with a higher TP of RM6.70 from RM6.50, while RHB Research kept its "buy" rating and TP of RM6.88.

“At 0.87 times FY2024 price-to-book value, we think valuations are too attractive to ignore. The stock remains a sector top pick,” said RHB Research in a note on Friday.

Meanwhile, HLIB Research kept its "hold" call, but raised its TP to RM6.20 from RM6.10, based on 0.95 times FY2024 price-to-book value.

“We see NIMs continue to be relatively stable next quarter, considering that fixed deposit rivalry is still fairly rational, despite the seasonally more competitive year end (unlike back in the fourth quarter of 2022).

“Besides, CIMB have already taken the necessary steps in October to secure most of its deposits funding to cross over to 2024.

“Also, loan growth is seen to chug along for now. Separately, we are not overly concerned over asset quality, as we believe CIMB is better equipped versus prior slumps; the big loan loss provisions built up over the past three years act as a robust buffer to cushion any short-term spike in the gross impairment loan ratio that could potentially stem from macro headwinds and tight monetary policy (loan loss coverage is now at 95%, versus the pre-pandemic level of about 75%),” the research house said.

On another note, most analysts maintained their recommendations on Alliance Bank, with the exception of an upgrade by RHB Research, which revised its call to "buy" from "neutral", after the banking group’s results for the first half ended Sept 30, 2023 (1HFY2024) came in above expectations.

“Alliance Bank’s 1HFY2024 net profit of RM356 million was a slight beat, making up 53% of our full-year forecast. At the halfway mark, the bank is on track to meet all of its guidance for the year, and a sequential drop in GIL (the gross impaired loan ratio) was the icing on the cake,” said RHB Research, which has a TP of RM4 for the counter.

Meanwhile, CGS-CIMB kept its "hold" recommendation on the banking group, after observing a commendable 10-basis-point quarter-on-quarter recovery in NIM in the second quarter ended Sept 30, 2023 (2QFY2024).

“[The NIM recovery was] the strongest in the sector, based on our observation. According to the bank, this was achieved by purging some of its high-cost deposits, while being disciplined in the pricing of loans, even in its quest to speed up loan growth,” it added.

The research house said that despite the improvement in the bank's loan growth, it maintained its "hold" call, as compared to other local banks, Alliance Bank had a relatively smaller management overlay to shield it from any increases in loan loss provision (or for further write-backs).

Maybank Investment Bank, meanwhile, said that although Alliance Bank’s 2QFY2024 earnings beat expectations, it kept its full-year forecast unchanged, on anticipation of softer non-interest income in 2HFY2024. 

“The management’s targets are largely maintained, and our FY2024 return on equity [estimate] of 9.1% lags the management’s target of over 10% (10.1% in 1HFY2024),” said the house, as it maintained its "buy" call on the banking stock, with an unchanged TP of RM4.10, on a calendar year 2024 price-to-book value target of 0.8 times.