KUALA LUMPUR (Feb 16): The Malaysia banking sector is expected to remain positive as the price-to-earnings ratios (PER) are near pandemic lows, according to Maybank Investment Bank (Maybank IB)

In a note on Friday, the research house explained that banking stocks are currently valued at an average PER of 9.3x, close to the low levels of 8.3x seen during the pandemic in October 2020, which it believes is unjustified.

It highlighted that this valuation is even lower than the long-term historical average, represented by the -1 standard deviation (SD) to mean PER of 10.1x.

"Even CIMB Group Holdings Bhd, which has seen its share price outperform its peers this year, is still trading slightly below -1SD to mean as well," it added.

Despite modest earnings growth in the banking sector, averaging 4.7% from 2013 to 2022, Maybank IB said the forward PER valuations during this period averaged 11.8x.

However, the current forward PER valuations for 2024 are lower at 9.5x, despite expectations of faster earnings growth at 5.8% in 2024 and 6.5% in 2025.

Moreover, Maybank IB said there has been recent foreign interest, particularly in Maybank and CIMB, with foreign shareholding levels recovering.

According to the research house, Maybank’s foreign shareholding currently stands at 19.2% as of January 2024, roughly midway between its peak of 26% and low of 15.6%, while CIMB’s foreign shareholding has climbed to 30.7% as of December 2023, since its trough of 20.3% in May 2021.

However, the research house acknowledges that it's still uncertain if Malaysian banks can attract more foreign interest, but factors such as attractive valuations, improving earnings, sustainable return on equity (ROE), high dividend yields (5% or more), stable interest rates, and the potential for a stronger Malaysian ringgit could make investing in Malaysian banks appealing to foreign investors.

Nevertheless, Maybank IB maintains a "positive" rating on the banking sector, recommending a "buy" call for AMMB Holdings Bhd (TP: RM4.75), CIMB Group Holdings Bhd (TP: RM6.60), Public Bank Bhd (TP: RM5.05), Alliance Bank Malaysia Bhd (TP: RM4.10), Hong Leong Bank Bhd (TP: RM23), and Hong Leong Financial Group Bhd (TP: RM21.70).

The research house also recommends a "hold" call for RHB Bank Bhd (TP: RM6.20) and Bank Islam Malaysia Bhd (TP: RM2.45).