KUALA LUMPUR (Feb 5): RHB Investment Bank (RHB IB) has downgraded the non-bank financial sector to “neutral”, citing valuation as a key concern after a strong performance in 2023, while remaining bullish on the insurance sub-sectors but advised investors to be more selective on the non-bank lenders. 

In a sector update on Monday, the research house said the sector earnings growth should hold up in 2024, supported by a decent macroeconomic backdrop. 

The research house noted that some of the non-bank financial stocks are trading at stretched valuations, while the insurers are still facing some headwinds from the adoption of the new accounting standard — Malaysia Financial Reporting Standards 17 (MFRS17). 

On stock recommendations, RHB IB named Aeon Credit Service (“buy”; target price (TP): RM7) and Syarikat Takaful Malaysia Keluarga (Takaful) (“buy”; TP: RM4.30) as its top picks. 

RHB IB said both stocks are trading at significant discounts to their historical mean valuations, despite having healthy fundamentals and bright growth prospects. 

“Our preferred pick for the sub-sector is still Aeon Credit Service (M) Bhd (ACSM) for its undemanding valuation (0.9 times price-to-book ratio versus 14% return on equity) and sizable presence in multiple states to anchor its growth on,” RHB IB said. 

“While [ACSM’s] earnings per share (EPS) growth will undoubtedly be hindered by start-up losses from its soon-to-launch digital bank, we believe the investment will pay dividends in the medium- to long term via new customer acquisition and cross-selling opportunities,” it added. 

Takaful, on the other hand, is projected to achieve a 10% EPS growth in FY2024, driven by a pickup in life insurance or family takaful contributions and stabilising claims and reinsurance costs. 

However, RHB IB is less optimistic on Bursa Malaysia Bhd (“neutral”; TP: RM7.90), ELK-Desa Resources Bhd (“sell”; TP: RM1.05) and RCE Capital Bhd (“sell”; TP: RM2.30). 

RHB IB opined that Bursa Malaysia’s share price has already priced in the expected improvement in securities average daily value (SADV) in 2024, while its ventures into new territories such as carbon markets and debt fundraising are unlikely to contribute meaningfully to its topline in the medium term. 

ELK-Desa Resources and RCE Capital are seen as having limited upside potential due to their high valuations and competitive pressures. 

The research house also maintained its “buy” rating on Allianz Malaysia Bhd, with a target price of RM21.10.