Astro Malaysia Holdings Bhd

BANKING SECTOR By Kenanga Research Rating: Overweight

KENANGA Research is keeping a “overweight” call on the banking sector due to easing monetary conditions which have been supportive of continued growth, pushing loan growth and improving prospects of recovering.

The research house said the overweight call is also because the banking sector has been undervalued as the larger banks have underperformed year to date.

“Valuations are attractive and undemanding with all banks under our coverage rated as Outperform, except for Hong Leong Bank.

“Banks with healthy asset quality will still be in favour for their defensive quality,” it added.

Meanwhile, Kenanga Research believes that the upcoming Budget 2020 would provide more clarity and support for the domestic economy, supporting loans growth.

“The May 2019 overnight policy rate cut will support the banks’ bottom line as credit charge will likely be lower on account that probability of default will be lower with faster recovery rate as interest is reduced,” it said.

However, the research house does not expect any significant impact on the top line.

“In fact, we believe that the cut will support banks’ bottom line as credit charge will likely be lower as defaults will be lower with a faster recovery rate as interest is reduced,” it said.

Kenanga Research’s top picks are Alliance Bank Malaysia Bhd and CIMB Bank with target prices of RM3.45 and RM6.45 respectively, saying that the banks are prime beneficiaries from mergers and acquisitions as well as tie-ups.