KUALA LUMPUR: CGS-CIMB Equities Research projects net profit (NP) growth for banks in the calendar year 2022 despite the one-off Cukai Makmur (CM) or prosperity tax.

       It said on Friday however, the major concern for the sector was that the CM proposed under the Budget 2022 would derail banks’ net profit (NP) growth in CY22F.

       “On a positive note, following our recent earnings adjustments to factor in CM and a 25bp hike in overnight policy rate (OPR) in mid-2022, we still project a core NP growth of 2.4% for banks in CY22F, although this had been cut from a growth rate of 8.1% previously,” it said.

       CGS-CIMB Research said in its reports dated Nov, 5, Nov 8 and Nov 9, it adjusted its earnings forecasts to factor in CM and a 25bp hike in OPR.

       This led to a cut of 1.4% in our projected CY21F core NP for the sector (due to CM), a reduction of 6.5% in CY22 core NP forecasts (as the negative impact from CM would more than offset the positive impact from OPR hike), and a 2.3% rise in CY23F core NP forecasts (lifted by OPR hike).

       “Following the earnings revisions, we cut our projected core NP growth from 10.5% to 9% for CY21F and from 8.1% to 2.4% for CY22F.

       “We are encouraged that our expected earnings recovery in 2021-22F remains intact after factoring in CM, despite projecting core NP to expand at slower rates.

       “In addition, we raised our projected growth in core NP for banks from 7.6% to 17.7% for CY23F, due to (1) lower base for CY22F core NP (dragged down by CM), and (2) the positive impact of OPR hike on CY23F earnings,” it said.

       CGS-CIMB Research reiterate its overweight rating on Malaysian banks given the potential re-rating catalyst from the continuation in earnings recovery in CY22F.

       “We project a core NP growth of 2.4% for banks in CY22F even after factoring in the negative impact from CM. The expected earnings catalyst for CY22F would be our projected 7% increase in net interest income and 4.8% drop in loan loss provisioning.

       “Following the earnings adjustments, we kept our recommendations for all Malaysian banks under our coverage, including the Add ratings for Public Bank, Hong Leong Bank, Maybank (these are our top picks), RHB Bank and AMMB as well as Reduce calls for Affin Bank and Alliance Bank,” it said.

       As for Hong Leong Bank, it has an add call and target price (TP) RM20.56 vs RM18.14 close. CGS-CIMB Research sees earnings catalysts in FY6/22 from its above-industry loan growth, a decline in loan loss provisioning and strong expansion in associate contribution from Bank of Chengdu.

       As for Malayan Banking Bhd, it has an add and TP of RM9 versus its RM8 close.

       “We expect Maybank to benefit from the stronger industry’s loan growth of 5%-6% in Singapore and low teens in Indonesia in CY22F (vs. 4%-5% in Malaysia). Its dividend yield is also attractive at 4.8% for FY21,” it said.

       CGS-CIMB Research also has an add for Public Bank Bhd with a TP of RM4.60 compared with its RM4.02 close.

       “Public Bank is our top pick for the sector as we believe that it is the most defensive against the credit risks arising from the Covid-19 pandemic. This is supported by its strong track record, with its gross impaired loan ratio consistently the lowest in the sector,” it said.