The latest earnings quarter turned out to be a worse than expected for Malaysian stocks. Among the MY stocks that were under DBS’ coverage, 30 percent missed consensus expectations. This was largely driven by underperformance of plantation, utilities, oil & gas and airline companies. Large cap companies have also been guiding for more cautious growth in 2019, leading to a downward earnings revision across KLCI.

Given the lack of earnings growth, DBS recommends investors to build more defences into your investment strategy while looking out for quality names with resilient earnings and yield. Here are the top MY picks that DBS thinks should go into your portfolio to go defensive.

Investors Takeaway: 3 MY Bank Names For A Defensive Portfolio

  1. Hong Leong Bank

Hong Leong Bank is among the best in cost efficiency and asset quality within Malaysia’s financial sector. Despite a fairly sluggish 1H19, the group is poised to rebound with a better second half on the back of improving loan growth. Furthermore, net interest margins have also been stabilising thanks to an increase in its base lending rate. The contributions from its subsidiary Bank of Chengdu has also helped Hong Leong Bank to improve its earnings.

Thus, DBS believes that Hong Leong Bank deserves its premium valuation for its steady earnings and stable contributions. Overall, DBS views Hong Leong Bank as a defensive play which is well equipped to ride out the more challenging operating environment.

BUY, TP RM23.10; Current share price RM20.14

  1. RHB Bank

Asset quality used to be a concern for RHB Bank. But with gradual improvement in gross impaired loan ratio over the past few years, asset quality has improved for the bank tremendously. This has led to an improvement in net credit costs for RHB in 2018.

According to DBS, RHB Bank is now trading at an affordable valuation of 0.9 times FY19F book value amidst an improving earnings profile. DBS is confident that RHB Bank will be able to execute in its key target segments (i.e. retail mass affluent/affluent and SMEs). So far, these segments have generated good loan traction despite a muted environment on the corporate end.

BUY, TP RM6.10; Current share price RM5.77

  1. BIMB Holdings

BIMB Holdings is one of DBS’ top picks for its robust fundamentals despite a challenging operating environment within the banking sector. Its strength in key segments like personal financing is providing a resilient avenue of growth for BIMB Holdings. It has also helped BIMB Holdings keep net financing margins afloat in the face of rising funding costs.

Besides the personal financing segment, Syarikat Takaful Malaysia Keluarga Berhad has also been a consistent source of income for BIMB Holdings. Syarikat Takaful Malaysia contributes to more than 30 percent of BIMB’s total revenue. At its current share price, DBS believes that BIMB Holdings is trading at an undemanding valuation. Interest in BIMB Holdings could go up if the group’s restructuring plans are ramped up.

BUY, TP RM5.15; Current share price RM4.40

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