The non-bank financial sector in Malaysia remains a mixed bag, with sector results for the June 2024 quarter largely in line with expectations. RHB Stock Broking House (RHB) maintain a NEUTRAL stance on the sector, citing varied valuation profiles across the industry. Key catalysts, such as the anticipated US Federal Reserve rate cuts and the civil servant salary revision, provide optimism for the near term. However, analysts recommend a more selective approach, with top picks being Bursa Malaysia (BURSA) and AEON Credit Service (ACSM), given their growth potential and possible dividend upsides.
RHB have issued a Buy call on Bursa Malaysia following strong performance in the first half of 2024, with a net profit of RM155.5 million, up 17% year-on-year. The group revised its full-year profit before tax target upwards to RM361–379 million. BURSA's robust IPO pipeline and continued strength in the securities market position it well for further growth. Despite concerns about geopolitical risks, the expected US rate cuts are expected to boost domestic trading liquidity. BURSA's historical tendency to issue special dividends in periods of high trading activity adds to its appeal. Meanwhile, a Neutral recommendation has been issued for AEON Credit Service, as its results met expectations, and it remains well-placed for growth, with double-digit growth in receivables.
In the insurance sector, underwriting margins have tightened, driven by higher claims and acquisition costs. However, investment returns have surged over 30% year-on-year due to marked-to-market gains and portfolio expansion. Analysts maintain a selective stance here, preferring Syarikat Takaful Malaysia Keluarga (STMB) over Allianz Malaysia (ALLZ), given STMB's smaller portion of participating contracts, allowing it to retain more of its investment gains. The introduction of mandatory co-payment options is not expected to significantly impact the sector in the near term, as meaningful uptake will take time.
For non-bank lenders, AEON Credit Service remains the top pick due to its undemanding valuation and multiple growth avenues, including its digital bank. Results from RCE Capital and ELK-Desa Resources fell below expectations due to slower disbursements and higher credit costs, though receivables growth remained strong. The sub-sector is likely to benefit from the upcoming civil servant salary revision, which is expected to support receivables growth and improve asset quality. Credit costs are also anticipated to decline, further improving prospects for companies like ACSM. However, the impact of subsidy rationalisation measures on the sector remains uncertain, though asset quality remains stable for now.
