KUALA LUMPUR (Jan 17): CIMB Investment Bank Bhd maintained its "overweight" call on the Malaysian banking sector, as it sees 'a better year ahead' for the industry. This is in anticipation of net profit growth recovery, amid banking stocks' attractive valuations.

In a note today, CIMB said it expects the sector to post a net profit growth of 11.2% in 2017, from a year earlier versus an estimated 0.3% expansion in 2016.

“We forecast a recovery in banks’ net profit growth from 0.3% in 2016 to 11.2% in 2017, primarily due to (i) a smaller increase of 4.1% in loan loss provisioning (versus 65.9% in 2016); and (ii) absence of total RM452 million impairment for Swiber bonds, which was incurred by Malayan Banking Bhd (Maybank) and RHB Bank Bhd in 2016.

“At the topline, we forecast an expansion of 6.5% for NII (net interest income) and 8.6% for non-interest income for banks in 2017,” CIMB said. 

CIMB said it maintained its "overweight" call on the banking sector, due to attractive valuations, given that RHB Bank, AMMB Holdings Bhd and Affin Holdings Bhd  were forecasted to still trade below their five-year average price-to-earnings ratios in 2017.

“Our top picks for the sector are RHB Bank and Maybank. The downside risks to our call are (i) significant deterioration in asset quality; and (ii) further weakening of loan growth,” CIMB said.