KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) Research maintains its “overweight” position on the banking sector due to the absence of a recurring prosperity tax and any form of loan moratorium in the 2023 budget, such as the some factions of the investment fraternity speculate.
“By virtue of this, the 2023 budget is a victory for the banks. Therefore, we continue to view the banking sector positively and believe the risk-reward profile is skewed to the upside,” he said in his Market Outlook report.
According to the research house, the combination of robust earnings growth and undemanding valuations will boost performance.
For large banks, such as Maybank, the target price (TP) is RM9.70 for its strong dividend yield.
For mid-sized banks, RHB (TP: RM6.60) is preferred for its high Common Equity Tier 1 (CET1) ratio and attractive price.
For smaller banks, all three covered by HLIB Research are “buy” calls for different reasons: Bank Islam Malaysia Bhd (TP: RM3.00) for its lagging share price, Affin Bank (TP: RM2.35) for its special dividend potential and strong financial metrics, and Alliance Bank (TP: RM4.05) for its six to seven percent cash dividend yield and large provision coverage buffer Management.
Overall, HLIB Research said the 2023 budget of RM372.3 billion is muted for the market.
“While the 2023 budget was billed as an ‘election budget,’ we felt it was relatively low-key from a market perspective, with no major surprises or shocks. But really, that’s not a bad thing, considering given the previous budget which spooked the market with its prosperity tax and rising stock stamp duty,” he added.
He said the restructuring of personal income tax – 2% reduction for income brackets 50,000 to 100,000 RM and increase by 0.5% for 250,000 to 400,000 RM – results in an increase from 250 to 1,000 RM of annual disposable income of taxpayers (those above the 50,000 RM income bracket) or 800 million RM in total.
“This would more than offset the marginal reduction in Bantuan Keluarga Malaysia’s cash disbursements to RM7.8 billion for 2023 (2022: RM8.2 billion),” HLIB Research said.
The research house added: “The absence of any mention of the Goods and Services Tax or targeted fuel subsidies was remarkably silent – which is understandable though, as the 15th general election is near. Still, drawing on the Department of Finance’s Consumer Price Index projection of 2.8-3.3% in 2023, it suggests there may be plans for a modest increase in the price. at the pump. – Bernama