Investment Highlights

• We maintain our BUY recommendation on RHB Bank with a revised fair value of RM5.70/share (from RM6.00/share). We peg the stock to an FY21 P/BV of 0.8x supported by a ROE of 8.3%. We lower our FY20 earnings by 6.0% to reflect higher credit cost of 0.40% (previously: 0.30%).

• 2Q20 core earnings stripping out the modification loss of RM392.4mil came in at RM687mil (+20.3% QoQ) driven by higher non-interest income (NOII) attributed to a rise in investment and trading coupled with stronger brokerage income.

• 6M20 underlying net profit stood at RM1.26bil (+1.0% YoY) making up for 56.9% and 61.1% of our and consensus estimate. We deem it to be within expectation as we have pencilled in another OPR cut of 25bps to 1.50% into our earnings projection.

• Loan growth picked up pace to 4.9% YoY (1Q20: 3.6% YoY), supported by mortgages, and SME and overseas loans.

• 2Q20 NIM slipped by 6ps QoQ to 2.05% due to the OPR cut of 50bps in May 2020. Moving forward, we expect the group’s NIM to further taper due to the 25bps interest rate cut in July 2020 and the likelihood of another cut of similar quantum in Sept 2020.

• Deposit growth accelerated to 7.8% YoY (1Q20: 3.8% YoY) while momentum for CASA remained strong, lifting CASA ratio higher to 28.6% (1Q20: 27.4%).

• The group posted a positive JAW of 6.7% YoY in 6M20 with a CI ratio of 45.5% based on underlying total income.

• 6M20 credit cost rose to 0.40% due to the further preemptive provisioning taken for the impact of Coivd-19 of RM90mil and another RM160mil due to higher ECL via adjustments of macroeconomic variables (MEVs). The group’s GIL ratio declined slightly to 1.87% with domestic GIL ratio at 1.43%, below the industry’s 1.5%.

• No interim dividend has been proposed pending more clarity of the market outlook and group performance.

Source: AmInvest Research - 1 Sept 2020