Banking sector update – The party is over (CIMB)

We are downgrading Malaysian banks from an Overweight to a NEUTRAL in light of our more cautious stance on the global economy and capital markets. We envisage weaker investment banking deal flow and loan growth ahead while the margin squeeze would remain a concern. However, there are still positives for the sector - (1) financing opportunities for ETP projects, (2) undemanding valuation, and (3) attractive dividend yield. We lower our target prices for banks by up to about 16% by withdrawing premiums (or tagging a 10% discount) over our DDM values and cutting assumed dividend growth rates. Given the bleaker outlook for the investment banking sector, we downgrade RHB Capital and AMMB Holdings to Neutral but retain our Outperform calls for Maybank, which is still our top pick, and Public Bank.