Investment Highlights

• We maintain our BUY recommendation on RHB Bank with a revised fair value of RM5.80/share (previously: RM5.70/share). We continue to peg the stock to an FY20 P/BV of 0.9x supported by an ROE of 8.6%. We fine-tune our 20/21 earnings by +0.4%/-0.8 to reflect slower loan growth of 2%/3% and a moderation in deposit growth.

• 1Q20 earnings were RM571mil (-9.4% YoY), a flat total income of +0.2% YoY. Higher net interest income was offset by lower non-interest income attributed to unrealised marked-to-market (MTM) losses on FVTPL securities from swings in MGS yields. In April 2020, yields have turned more favourable, and this has reversed the losses, turning into gains.

• Net profit was within expectations, making up for 25.0% of ours and 25.2% of consensus estimate.

• Loan growth decelerated to 3.6% YoY, supported by mortgages, and SME and overseas loans. Domestic loan growth expanded by 2.2% YoY, slower than the industry’s growth of 4.0% YoY.

• 1Q20 NIM fell 3bps QoQ to 2.11% due to OPR cuts of 25bps each on Jan and Mar 2020. Moving forward, we expect the group’s NIM to taper further due to the 50bps interest rate cut in May 2020. As of now, we have yet to see signs of further rate cuts domestically.

• Deposit growth eased to 3.8% YoY while CASA ratio climbed to 27.4%. The strong CASA growth of 16.4% YoY was supported largely by the expansion of retail, wholesale banking and overseas’ low cost deposits.

• The group posted a positive JAW of 0.8% in 1Q20. CI ratio was 48.2%, a slight improvement over 1Q19.

• 1Q20 credit cost rose to 0.34% due to the preemptive provisioning taken for the impact from Coivd-19. We expect potentially further increase in the provisioning buffer. The group’s GIL ratio rose to 2.00% from 1.97% in 4Q19 contributed by the impairment of a corporate in Malaysia related to property development.

• The group targets to maintain its FY20 dividend at 31 sen/share, similar to FY19.

Source: AmInvest Research - 1 Jun 2020