Introduction

The Malaysian banking sector is poised for a stable 2025, supported by steady economic growth, rational deposit competition, and benign credit costs. Maybank Investment Bank projects a 5.9% growth in operating and net profits for the sector, with an average return on equity (ROE) of 10.5%. Dividend yields exceeding 5% further bolster investment appeal. This comprehensive analysis explores the top picks—AMMB, CIMB, and Public Bank (PBK)—and delves into detailed insights for each covered bank.

AMMB: Banking on Business Banking

Recommendation: BUY

Target Price: MYR6.30

• Business Banking Growth: AMMB has merged its SME and mid-corporate divisions into a unified business banking unit. This move aims to enhance risk management, capture non-borrowing retail SMEs, and expand their enterprise banking program. The division is projected to deliver double-digit pre-tax profit growth and account for 44% of group pre-tax profits by FY29, up from 28% in FY24.
• Proactive Funding Cost Management: AMMB achieved the highest net interest margin (NIM) improvement among peers in 9M24, rising by 14bps. Its liquidity coverage ratio of 144% exceeds peers, ensuring better margin preservation.
• Higher Dividend Payouts: AMMB’s Common Equity Tier 1 (CET1) ratio has surged from 10.4% in 1Q21 to 15.3% in 2Q24, the second-highest among peers. This improvement allows for higher dividend payouts, with expectations of a 50% payout ratio in FY25, increasing to 60% over time. Dividend yields stand above 5%.

At a target price of MYR6.30, AMMB is valued at 0.98x CY25E P/B with a projected ROE of 9.7%.

CIMB Group: Regional Growth Driver

Recommendation: BUY

Target Price: MYR9.20

• Regional Contributions: CIMB Niaga (Indonesia) and CIMB Singapore contribute 24% and 14% to group earnings, respectively, with high ROEs of 14-17%. CIMB Niaga’s improved fundamentals include a cleaner loan portfolio and a focus on quality corporates and consumers. CIMB Singapore is expanding regional flows, SME penetration, and wealth management services.
• CIMB Thai Turnaround: CIMB Thai’s low ROEs of 5-6% stem from issues in consumer finance. However, its corporate/wholesale business remains strong. Management is reviewing its business model, and a turnaround could enhance group growth.
• Capital Management: With a CET1 ratio of 15.0% as of September 2024, CIMB has room for further capital optimization. Management aims to maintain a CET1 ratio above 14.5%, with long-term sustainability at around 13%.

CIMB’s target price is MYR9.20, based on 1.3x CY25E P/B, with a projected ROE of 11.2%.

Public Bank: Overhang Concerns Overblown

Recommendation: BUY

Target Price: MYR5.20

• Credit Cost Stability: Public Bank boasts a gross impaired loans ratio of 0.62%, the lowest among peers. Its MYR1.5 billion management overlays ensure low credit costs, supporting earnings stability.
• Non-Interest Income Enhancement: With the acquisition of a 44.2% stake in LPI Capital, Public Bank gains new income streams via banca fees and insurance income. This diversification addresses its lower non-interest income ratio of 20% compared to peers.
• Share Overhang Concerns: The founder’s family plans to sell a 12.28% stake over five years. However, the expected distribution across over 186,000 shareholders and 20,000 employees minimizes overhang risks. Average trading volumes can easily absorb these shares.

Public Bank’s target price of MYR5.20 is based on 1.7x CY25E P/B, with a projected ROE of 12.7%.

Other Banks in Focus

Key Insights and Sector Outlook

The Malaysian banking sector remains undervalued, with most stocks trading below their historical mean valuations. Despite stable economic conditions and benign credit costs, the sector provides ample upside opportunities. The top picks—AMMB, CIMB, and Public Bank—stand out for their robust growth strategies, proactive management, and attractive dividend yields.